Freeport Indonesia Looks at Controlled Shutdown of Mine

JAKARTA, KOMPAS.com - Freeport-McMoRan Copper & Gold is looking at a possible controlled shutdown to safeguard its multi-billion dollar assets at its vast Grasberg mine in Indonesia, as a worker blockade continued to disrupt production, the company said on Tuesday.

Freeport Indonesia halted production at its Grasberg mine on Monday due to security fears, worker blockades and after the main pipe carrying copper concentrate to its port was cut, in the worst supply disruption since a strike began a month ago.

Analysts and traders fear that the company might declare force majeure on shipments soon, although there was no word from Freeport.

“The road is still blocked... that’s true and that’s a big problem for us,” a Freeport spokesman told Reuters. “We are continuing to assess whether or not the security conditions are conducive for us to continue production."

“Based on the situation that we had Sunday night and Monday, we were preparing for contingencies for a controlled shutdown.”

He added that this would preserve its $2-$3 billion asset in Indonesia. Preparations for a controlled shutdown and mothballing of the mine would begin with the flushing of all remaining materials from its pipelines.

Freeport said the main pipe transporting copper concentrate from Grasberg, the world’s second-biggest copper mine, was cut in a sabotage earlier on Monday, helping copper prices to initially rise the previous day to a three-week high. Three-month copper on the London Metal Exchange fell 1.7 percent on Tuesday at $7,364.25 a tonne at 0525 GMT, on persistent concerns over the euro zone debt crisis.

“If the strike and mine closure is ongoing, this will underpin the price at the $7,000 a tonne mark almost irrespective of the Eurozone sovereign debt situation,” said Citigroup analyst David Thurtell. “Force majeure can surely only be hours or days away.”

The stoppage is a setback for Freeport after it said last week it had cranked up copper concentrate output at Grasberg to average above 4,000 tonnes daily by relying largely on non-unionized and contract workers, a move criticized by the government.

“For the repair of the pipeline — the section in mile 45 that was cut — I believe we’ve already got a temporary repair done on that,” the spokesman said. “There is no basis for the 30-day timeline,” he said, referring to comments made by a company source late on Monday that the concentrate processing plant will be shut for 30 days.

The company said it had still managed to ship 103,189 tonnes of concentrate in the past week, though with blockades to the port and rising worker tension, it was unclear if further shipments can be made. The Indonesian energy and mining minister said some production had resumed on Tuesday, but the firm could not confirm this.

“We still have concentrate that’s been dried at the port side. The last I heard, there were hopes to continue loading concentrate on ships,” the spokesman said.

“We still have people in Tembagapura, who are going to work.” Tembagapura is where the mine is located.

A second company spokesman said in a statement that the miner is currently producing concentrate at reduced levels, but “will temporarily suspend and/or curtail concentrate production as conditions warrant.”

Blockades

Road blockades, part of the prolonged strike by around 12,000 of the mine’s 23,000 workers, have stopped containers carrying food and medicine from reaching the mine and jet fuel from reaching the nearest airport, the company said on Monday.

A clash earlier last week between striking workers and police near the mine led to the death of two protesters — one of whom was a member of an indigenous tribe — and injured others, as disgruntled and striking Grasberg workers protested after being barred from collecting belongings from barracks.

“The road to the port is blocked and has been blocked since last Monday, which means we can’t get the supplies that we need,” the spokesman said. “We continue to work with the government and the security authorities, to try to provide adequate security.”

An official with the Freeport workers union said on Tuesday it was still blockading roads, but plan to stop once a permanent agreement has been reached with the company. The official added that Freeport had not approached the union for more negotiations, while there had been no further security incidents on Tuesday.

“Community activities are running normally, except logistic distribution for the company as roads are being blocked,” said Juli Parorrongan, a Freeport union spokesman.

“We haven’t received information on who did the (pipe) cutting,” she added. “But I was informed that there was a landslide at mile 70 and the pipe could be broken because of it. I assure you, it was not the workers.”