UPDATE 1-Indonesia's Freeport accident probe unlikely to take 3 months

Fri Jun 7, 2013 2:05am EDT

* Govt probe into tunnel collapse should not take long

* Three-month production loss could cut Freeport's 2013 EPS -BMO

By Michael Taylor and Yayat Supriatna

JAKARTA, June 7 (Reuters) - A government-led investigation into the tunnel collapse that killed 28 people at Freeport McMoRan Copper and Gold Inc's copper mine in Indonesia should not take three months to complete, the head of the probe said on Friday.

This signals production could resume sooner than expected at the Grasberg complex in west Papua, the world's No.2 copper mine where operations were shut on May 15, a day after a training tunnel away from the mining operations caved in on 38 workers.

"The three-month period stated by the Minister of Energy and Mineral Resources Jero Wacik was not just for the accident investigation, but for the whole investigation and inspections of all underground mining in Indonesia," Ridho Wattimena said.

"I think (the accident) investigation will be not too long," Wattimena, who is also head of the mining engineering graduate programme at the Bandung Institute of Technology, told Reuters. "We do not need months to investigate it."

The government investigation will focus on the cause of the collapsed tunnel to prevent a similar accident in the future, and once completed, a report and recommendations will be sent to Wacik, Wattimena added.

Arizona-based Freeport briefly resumed open-pit mining production on May 28, but after a worker was killed in a separate accident, the government asked the company to suspend operations until a government investigation was completed. The probe was forecast to take up to three months.

A three-month production loss could slash Freeport's 2013 earnings per share by 24 percent, if costs are expensed, to an estimated $2.54 per share, according to a BMO Capital Markets research note this week.

BMO estimates Grasberg will contribute 32 percent of Freeport's earnings before interest and tax this year.

Freeport Indonesia could not be contacted on Friday, but earlier this week it said that results of internal inspections confirmed that overall underground mine facilities were safe.

Indonesia's chief economics minister has called for the speedy completion of the government probe into the accident, so that open-pit mining can resume quickly.

Freeport Indonesia estimates it contributed around $1 billion to the Indonesian economy last year in taxes, royalties and dividends to the government.

A trade union representing the mine workers, wants both government and company-led investigations into the accident to be completed before production is resumed.

The Grasberg complex, which also has the world's largest gold reserves, normally produces around 220,000 tonnes of concentrated ore a day, with about 140,000 tonnes coming from open-pit mining and 80,000 tonnes from underground operations.

A stoppage of three months would cut around 125,000 tonnes of copper or about half a percent from global supply, according to Reuters estimates, which combined with other disruptions could wipe out an expected small market surplus and boost global prices.

Although Freeport has not said what level of stocks it has left, large miners typically have three to four weeks of ore stockpiled at port, and around three days on site.

Benchmark three-month copper on the London Metal Exchange traded at $7,365 a tonne on Friday, slightly lower than the day before the accident.

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