Freeport suspends mining in Papua after clash

[Scorpio]

UPDATE 2-
Wednesday 22 February 2006, 6:19am EST
By Muklis Ali

JAKARTA, Feb 22 (Reuters) - Activities at the huge mine owned by a unit of Freeport-McMoRan Copper & Gold Inc. (FCX.N: Quote, Profile, Research) in Indonesia's remote Papua province were suspended on Wednesday, a day after illegal miners clashed with security officers, an official said.

During the Tuesday clash, local miners equipped with bows and arrows wounded two security guards at the Grasberg operation, one of the world's largest gold and copper mines, which is heavily guarded by the Indonesian military and police.

The illegal miners have blocked the road leading to the mine and PT Freeport Indonesia had to stop production in the location to avoid more trouble, M.S. Marpaung, deputy director of investment at the mines and energy ministry, said.

"There has been a halt in production since several hours ago at the Freeport mine due to the protest but I think it will not go on for long," he told Reuters.

Police have said the angry locals wanted to meet top executives of PT Freeport Indonesia, Indonesia's largest taxpayer, before they retreat.

A Freeport company spokesman told Kompas, Indonesia's leading newspaper, the loss due to the production halt has not been determined.

But John Meyer, an analyst at Numis, said in a commentary: "The suspension could cost some 1,800 tonnes of copper and 9,000 ounces of gold production per day. A week-long stoppage could therefore lose 12,600 tonnes of copper and 63,000 ounces of gold."

"If short-lived then the impact on copper and gold markets should be negligible," he added.

But he also warned: "This is at a time when the copper market can ill afford to lose production although the supply of gold is far less critical."


SUPPORTIVE OF PRICES

Benchmark three-month copper futures on the London Metal Exchange <MCU3>, the world's largest non-ferrous metals trading arena, were quoted at $4,955/4,960 a tonne at 1101 GMT, up $17 from Tuesday when prices rallied just under one percent.

Copper hit a record $5,100 a tonne on February 7 and then dipped to $4,665 around mid-month before recovering.

Spot gold <XAU=> was $551.70/552.45 a troy ounce versus $554.70 late in New York on Tuesday.

"After the strong gains in recent days, the (copper) market is holding around $4,950," Barclays Capital analyst Ingrid Sternby said.

"The market is assessing what the implications of this will be. Looking at similar events in the past, these kinds of protests have been relatively short-lived, which is what the market is counting on.

"Nevertheless this provides underlying support," she added.

The Freeport Papua operation has been a frequent source of controversy in Indonesia on issues ranging from its treatment of the environment to the legality of payments to Indonesian security forces.

The mine also suffered a series of rockslides in 2003 which seriously curtailed output during the first half of 2004. [nL22585490]

Kompas said local Papuans have tried to find gold in the Grasberg mine for years and some of them have died due to river currents during their mining attempts.

Illegal miners often enter mining areas in Indonesia, the world's fourth most populous country and a sprawling archipelagic nation, rich in mineral resources such as copper, gold and tin.

(With additional reporting by Jae Hur in Singapore and Nick Trevethan in London)



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