Strike forces Freeport to halt work for second day
Strike forces Freeport to halt work for second day
TIMIKA, Irian Jaya (Bloomberg): Freeport-McMoRan Copper & Gold
Inc suspended operations for a second day yesterday at the
world's largest copper and gold mine amid a wildcat strike by
about 5,000 employees demanding higher wages.
New Orleans-based Freeport stopped mining and milling ore at
its Grasberg mine, in the Indonesian province of Irian Jaya, "as
a precautionary step to ensure the safety of employees and to
avoid the possibility of confrontation," the company said in a
statement Tuesday.
The strike, among workers employed by sub-contractors,
continued today for a third day and the company does not know
when production will resume, a Freeport spokesman in Jakarta
said.
Both the spokesman and Indonesian military officials in the
town of Timika, near the mine, said the situation is calm.
Analysts said they expect the strike will be resolved soon
because the collapse of the rupiah, down 80 percent in the past
year against the U.S. dollar, has slashed production costs for
Freeport, particularly fuel costs which are subsidized by the
government. Freeport can increase wages and still pass on higher
profits to shareholders, they said.
"I think Freeport will be able to go to its contractors, bump
up their payments and see to it that the workers get paid more,"
said David Rubin, a resources analyst for PT Bahana Securities, a
government-owned investment bank. "This should be over very
quickly."
Rubin estimates the company's production costs have fallen
more than 35 percent thanks to the rupiah's slide. The mine is
run by Freeport's PT Freeport Indonesia unit.
Still, the company has a history of confrontations with local
people, many of whom continue their subsistence lifestyle in the
province's jungles. In March 1996, the mine was shut for four
days as nearby towns were engulfed by rioting directed at Freeport.
"They're not exactly everyone's favorite uncle," Rubin said.
Shares fall
Freeport shares fell 11/16, or 4.7 percent, to 14 Tuesday on
news of the strike. Rubin recommended investors buy the stock,
which has tumbled 24 percent since former Indonesian President
Soeharto, who's a Freeport shareholder, was pushed out of office
in May.
Freeport's close relationship with Soeharto has created
investor concerns it could be caught up in the ongoing corruption
probe of the former president and his friends and family, driving
the shares lower. The company has a 30-year lease on the mine.
During the Soeharto years, Freeport contracted work to
businesses close to Soeharto's government.
Last year, the company provided $254 million in loan
guarantees and other assistance to Soeharto's private investment
vehicle, PT Nusantara Ampera Bakti, to buy 4.8 percent of
Freeport Indonesia.
The company defended the financial assistance at the time by
saying it was "in Freeport's interest to assure who will own the
shares at its primary operating subsidiary."
In a press briefing last month, Freeport Indonesia's President
Adrianto Machribie called allegations in the local press of
corruption at the company "baseless."
James R. "Jim Bob" Moffett, Freeport's chairman and chief
executive officer, is a personal friend of Soeharto's.
Freeport was the first foreign company to make a significant
investment here after Soeharto toppled Indonesia's first
President, Soekarno, from power.
The company has operated in Indonesia for a quarter of a
century, and is the single largest taxpayer and largest foreign
investor.
Concentrate shipping
The company said the strikers are among "non-staff" employees,
who earn lower wages and get fewer benefits than full staff. Of
Freeport's 16,000 or so workers at the mine, about 10,000 are
non-staff.
The strikers are seeking a 100 percent pay raise and full
staff benefits, the spokesman said. Though the company is
negotiating with the workers, he said talks are going slowly
because their leadership is unclear.
The labor union at the mine, which is controlled by the
government, is not behind the strike. Indonesia is in the process
of liberalizing laws limiting the rights of workers that included
a ban on all labor unions aside from the government-controlled
union.
Freeport ordinarily mills about 200,000 tons of ore a day,
producing about 5,000 tons of "copper concentrate."
The concentrate is shipped elsewhere for processing. The
company said it continues to ship concentrate today. A spokesman
said he didn't know how much concentrate it has in stock. Total
annual production is 1.1 billion pounds of copper and 1.65
million ounces of gold.
Freeport likely has enough concentrate in stock to continue
shipments for a month, so world copper supplies aren't likely to
be affected, analysts said.
The Grasberg, in the rugged interior of Irian Jaya, is the
single largest gold body in the world, with 76 million ounces of
reserves and the second-largest copper body in the world with
52.7 billion pounds of proven and probable reserves. The world's
largest copper reserves are at Chile's Minera Escondida.
The government also owns a stake in the mine as does Rio Tinto
Plc.