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.