Freeport delays output due to metal price slump

JAKARTA (JP): Copper and gold mining company PT Freeport Indonesia said on Tuesday it had delayed a plan to increase the ore output at its Grasberg mine in Irian Jaya to 300,000 tons per day (tpd) until metal prices improved.

Company president Adrianto Machribie said the company was currently producing 210,000 tpd of ore, and planned to gradually increase it to 240,000 tpd.

"Although the government has given us a license to produce up to 300,000 tpd of ore, we consider the 240,000 tpd output level is enough for now amid the slump in metal prices," he said.

Adrianto said copper prices had dropped to 62 U.S cents per pound, its lowest level since 1930, from an average $1.2 per pound in 1998.

Gold prices have slumped to $260 per ounce, from around $300 per ounce last year, he said.

Adrianto said depressed metal prices had affected the company's performance in 1998. But he declined to divulge details.

"Depressed prices, caused by sluggish demand amid the economic crisis, have forced us to rationalize our business, which includes improving efficiency.

"We are lucky that our production costs are still below cooper prices. Many copper mines in other countries have had to be closed because their production costs are higher than their revenue.

"We can not predict when the prices will go up again. Right now we are only focusing our efforts to survive."

Freeport, a subsidiary of U.S. mining company Freeport McMoRan Copper & Gold, was given permits earlier this year to increase its ore production to 300,000 tpd.

In return, the company agreed to double its copper royalties to the government from between 1.5 percent and 3.5 percent to between 3 percent and 7 percent of sales. It also agreed to triple the gold and silver royalties payable to the government from 1 percent to 3 percent of sales.

Under the agreement, the new royalty scheme will be backdated to Jan. 1, 1999, but it is only effective if Freeport's ore output exceeds 200,000 tpd.

Freeport Indonesia is 81.28 percent owned by Freeport McMoRan, 9.36 percent by the Indonesian government, with the remaining 9.36 percent of shares held by PT Indocopper Investama Industries, which is partly owned by PT Nusamba Mineral Industries.

Freeport operates a huge copper and gold mine in the Grasberg area in the country's easternmost province Irian Jaya.

Aside from the Grasberg area, Freeport holds two other contracts of work in the Block A and Block B areas in the province. Activities are still in the exploration stage in both contract areas.

Citing security problems, the company suspended exploration activities in the Block B area in May, but Adrianto said the company would resume explorations in mid-August.

Adrianto said the suspension was made on the advice of the province's security officials and local authorities.

Tension has reportedly been on the rise in many parts of the province over the past several months due to increased separatist movement activities ahead of the general election, he said.

"Block B area is very far from the authorities and security centers, making it hard for us to control any difficulties faced by our employees.

"Since we do not want anything bad to happen to our employees, we decided to suspend our activities in the area until the situation returns to normal," he explained, adding the company's performance was not affected by the delay.

He said the company was continuing its exploration activities in Block A.(gis)