Production from Freeport-McMoRan could be suspended for three months

June 3, 2013

An investigation into the tunnel collapse at Freeport-McMoRan Copper and Gold Inc’s Grasberg copper complex in Indonesia is expected to keep production from the mine suspended for about three months.

Production was suspended on May 15, the day after the collapse of a training tunnel killed 28 workers.

The loss of production would almost certainly hit Freeport-McMoRan’s ability to meet its contractual obligations, though the company has not said what level of stocks it has left, Reuters reported.

The Grasberg Mine normally produces around 220 kt/d (245,000 st/day) of concentrated ore a day, with around 140 kt (154,000 st) coming from openpit mining and 80 kt (88,000 st) from underground operations.

A three month stoppage at Grasberg would take an estimated 125 kt (137,000 st) of copper out of the global supply chain.

The suspension from Grasberg comes on the heels of a rockslide at Rio Tinto’s Bingham Canyon copper mine in April, the recent shutdown of India’s top smelter on pollution concerns and a shortage of feed stock scrap that has forced plants in China, the world’s top producer of refined metal, to cut capacity have all eaten into supply.

Freeport-McMoRan restarted openpit mining production on May 28, but after another worker was killed on May 31after a safety breach, the mining ministry told Freeport-McMoRan to stop until after its investigation was completed.

“There is now an independent investigation team which will work on the minister’s orders for three months,” Director of Minerals at the Energy and Minerals Resources ministry Dede Suhendra said in a text message sent to Reuters.

“While the investigation is ongoing, there cannot be any production activity, except maintenance.”

The government ban on production contradicts comments made a week earlier by officials at the mining ministry, which allowed for openpit mining to resume.

Freeport Indonesia union officials have consistently said that production work should not resume until all investigations into the May 14 accident were complete.

Traders said that the start of shipments from Rio Tinto’s giant Oyu Tolgoi mine in Mongolia this month could offset some of Freeport’s lost production but that smelters were likely to lose some of the premium in fees for processing concentrate.

The problems at Grasberg come ahead of contract renegotiations between the Indonesian government and the company on the mine, although Thamrin Sihite, a director general in the energy and minerals ministry, said the accidents would not have an impact.

Freeport is trying to obtain a contract extension beyond 2021. It wants to turn Grasberg into the world's biggest underground mining complex after 2016 when its openpit operations are due to end. Openpit mining currently accounts for two-thirds of production.



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