UPDATE 4-Some workers return to Freeport Indonesia copper mine

* Strike over pay still ongoing, output not at maximum

* Returning workers are contractors, union says

* Workers say any output cannot be shipped due to strike

* Copper prices at lowest this year (Adds company memo, port comment)

By Rieka Rahadiana

JAKARTA, Sept 19 (Reuters) - More than a thousand workers have returned to Freeport McMoRan Copper & Gold's strike-hit Indonesia mine, the company said on Monday, leading the union to say some production has restarted at the world's third-biggest copper mine.

The union, which declared a month-long strike for 8,000 mine workers from Sept. 15, said the returning workers were contractors who were operating machinery and doing maintenance, but this did not mean the strike was over.

The union said it had not reached an agreement and remained on strike, adding that the returning workers were contractors.

Freeport spokesman Ramdani Sirait declined to comment on the impact on production from workers returning to the remote Grasberg mine, which also has the world's largest gold reserves.

"This morning, some hundreds went to the highlands," said Sirait, adding that this came after 1,500 workers went to the firm's Papua operations at the weekend, from various departments.

The possibility of some supply being restarted at Grasberg added to bearish sentiment on the copper market, where prices slid 3.3 percent on Monday to their lowest this year as traders worried about a global demand slowdown. Prices were at $8,415 a tonne, down 3.2 percent, by 1101 GMT.

The workers have yet to agree a pay deal with the company, union official Virgo Solossa said. Workers have demanded a pay rise to between $17.5 and $43 per hour, from a current $1.5 to $3 an hour rate.

"We haven't reached any agreement. We are still on strike," said Solossa.

"Workers, the company, and police agreed that employees, in this case contractors or whatever they are, can maintain the machinery. But in reality, the workers are running production machinery. This is what we see," he told Reuters.

THREAT OF SACKING

An internal company memo seen by Reuters said workers were required to return, and if they remained absent for five working days without a written statement or legitimate evidence, they could be sacked. Monday is the fifth day of the strike.

It was not clear how many workers that were on strike had decided to return to the actual mine or to what extent production had restarted, with Solossa only saying output was not at its maximum level.

"Production at the mill operation is paralysed, at Grasberg as well. There are workers underground, working as drillers, but output cannot be carried out by conveyor to the mill as the machines are not running," said one Freeport Indonesia worker.

Based on the mine's daily output target, the strike potentially cut output of 230,000 tonnes of ore per day, said energy ministry official Thamrin Sihite on Friday, after a meeting with Freeport Indonesia's management.

A shipping worker from Freeport's Papua port said there were no ships that could load or be unloaded because the port workers were still on strike.

Last week, industry officials told Reuters the strike at Freeport's port in Papua province had delayed around 133,000 tonnes of copper ore concentrate shipments. (Additional reporting by Samuel Wanda in Timika; Writing by Neil Chatterjee; Editing by Helen Massy-Beresford)