Freeport Indonesia mine should stay shut to probe tunnel collapse -union

Fri May 17, 2013 4:57am EDT

* Suspension of copper mining enters third day

* Tension between union, Freeport could spook investors

* Indonesia president calls for investigation

By Yayat Supriatna and Michael Taylor

JAKARTA, May 17 (Reuters) - Freeport McMoRan Copper & Gold Inc's Indonesian copper mine should remain closed for an investigation into a tunnel collapse that has left five dead and 23 missing, a trade union leader said on Friday.

Thirty-nine workers were attending an underground training class away from the main operations at the world's No.2 copper mine when a tunnel fell in on them on Tuesday.

Freeport Indonesia, which on Wednesday halted work at the Grasberg mine in the remote West Papua province as a mark of respect to those killed or trapped, could not immediately be reached for comment on Friday.

"All operational activities including production activities have to be stopped during the investigation process," union leader Virgo Solossa told Reuters.

"We think that the accident has been caused by the company's carelessness. This has to be investigated."

Freeport had said on Wednesday that it was still too early to identify the causes of the incident and that it would continue to look into the collapse.

Operations at the mine, which also holds the world's largest gold reserves, remained suspended on Friday, according to Solossa and a source with knowledge of the matter.

Any impact on supply would initially be minimal as the mine keeps stockpiles in reserve in case of disruptions, but that would change if the closure drags on.

Investors will also be wary that the incident could further sour relations between the union and the Arizona-based firm, with memories still fresh of a three-month strike in late 2011.

On Thursday, the company and union put on hold pay talks that began on May 13.

Indonesian President Susilo Bambang Yudhoyono called for an investigation and for rescue efforts to be intensified in a Twitter message late on Thursday, urging all companies in the country to improve safety for workers.

The Grasberg mine has been a frequent source of friction over how its rich resources are shared between locals, the company and Jakarta.

Around 50 percent of the mine's copper is shipped to smelters that Freeport either owns or part-owns in Indonesia and the United States, analysts say.

TRAINING TUNNEL

Solossa said the government should take "firm action" and questioned why the company built the training centre in an underground area, as well as the building's structure and safety procedures.

"Freeport also has to show full responsibility for the victim's treatment and compensation," he said, adding that the firm should replace workers injured or killed with their relatives.

The training tunnel was located outside the mining area and around 500 metres from the entrance of the Big Gossan mine.

Freeport Indonesia President Director Rozik Soetjipto, who was at the mine site on Thursday, ordered field teams to make a new round of inspections in all underground structures to ensure that they are safe.

Despite the suspension of operations, which was being reviewed on an hourly basis, Freeport Indonesia has said that production was not expected to be significantly affected.

Freeport declared a force majeure on some concentrate sales about one month into a three-month strike in late 2011, freeing itself from some of its contractual supply obligations.

"In locales like this, that are more prone to geological and employer unrest and also from a weather aspect too, they have to be well prepared for periods where there may not be much in the way of mine production," said Gavin Wendt an analyst for MineLife in Australia.

Freeport Indonesia's sales are expected to reach 1.1 billion pounds of copper and 1.2 million ounces of gold in 2013, up 54 percent and 31 percent over 2012, respectively.

"You will be looking at about four weeks of supply in stockpiles to ensure that the operation can keep chugging along," he added. "If it continues on, you'll start to see an impact on copper prices ... After a week and if there is a prospect that it will linger on."

Benchmark copper on the London Metal Exchange was little-changed at $7,300.75 a tonne by 0846 GMT.

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