Indonesia's Freeport mine risks prolonged closure over disaster
* Death toll rises to 21, hopes fade for survivors
* Unions demand thorough investigation
* Mine has been closed for a week
By Michael Taylor
JAKARTA, May 21 (Reuters) - Freeport McMoRan Copper & Gold Inc's Indonesian mine could face a prolonged closure and scrutiny over its underground mining plans after one of the country's worst-ever mining disasters, analysts and mining sources said.
The Arizona-based company closed the world's second-largest copper mine on Wednesday last week, a day after a training tunnel away from its main operations fell in on 38 workers. The death toll has climbed to 21, while ten have been rescued and seven remain missing.
The incident's impact on global copper supply has so far been limited as the Grasberg mine complex keeps stockpiles in reserve in case of disruptions, but that would change if the closure drags on.
"You have to think that is not something that is going to be resolved overnight, said Gayle Berry, an analyst at Barclays in London.
"The danger is that if Freeport do try to re-start Grasberg too early, they might inflame already quite tense labour relations at a period when they are meant to be negotiating with unions," she added.
Freeport said it would only reopen with government permission.
"When we ... resume operations, we will also have to consult with the ministry of mines," Freeport spokeswoman Daisy Primayanti at the start of the week.
Indonesian President Susilo Bambang Yudhoyono called for an investigation and for rescue efforts to be intensified in a Twitter message last week, urging companies in the country to improve safety for workers.
Indonesia's mining sector has a poor safety record after a series of previous accidents including an explosion at a coal mine in Sumatra that killed at least 28 people in 2009 and a landslide in 2006 that killed eight.
The government last week banned underground operations at the West Papua mine, Primayanti said. Most metal at the facility, in one of the most remote regions of the Indonesian archipelago, is currently extracted from an open pit but the company plans to increase the share from underground mining.
"Politically, they would have to leave the operations suspended until the last of the bodies are recovered ... The only nearby issue is how long until they restart. I'd say that will be a number of days," said a senior mining industry source.
"The bigger strategic question is what is the implication for the development of the underground mining operations and therefore to Freeport's targeted production levels as it moves into an underground phase," said a mining industry source with knowledge of the sector in Indonesia
"Are there issues with the ground conditions or rock mechanics that the Freeport engineers don't understand?"
Investors are also concerned the accident could further strain relations between the company and trade unions after a three-month strike in late 2011 and smaller disputes since.
A union leader last week demanded that Freeport keep the mine closed while the cause of the accident was investigated.
Separately, Indonesia's largest workers' union, the Indonesian Trade Union Confederation, held a small demonstration of about 25 outside the mining ministry in Jakarta over the disaster on Tuesday.
The Papua-based union leader Virgo Solossa denied that some workers had demonstrated over the accident at the mine and blocked roads, saying they were seeking to help with the evacuation efforts.
Freeport Indonesia could not be reached for comment on Tuesday.
Freeport Indonesia's President Director, Rozik Soetjipto, said on Saturday that once the rescue efforts were finished it would launch an investigation with the help of international experts and Indonesian government officials.
"We will not rest until we find out how such a tragic event could have happened and take all action possible to ensure that it does not occur again," said Soetjipto, who visited the accident site last week, along with Freeport President and CEO Richard Adkerson.
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.
The rise in sales is due to higher ore grades and the targeted ramp up in production from its underground operations.
Benchmark copper on the London Metal Exchange was little-changed at $7,398 a tonne by 0514 GMT.
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