* Grasberg output cut 60 pct but no layoffs -union official
* Freeport says milling rate half normal level since mid-Jan
* Freeport talks with govt continue 2 months after new rules
* Freeport says tax breaches contract
By Yayat Supriatna
JAKARTA, March 11 Freeport-McMoRan Copper and
Gold Inc has cut ore production at its Indonesian copper
and gold mine by around 60 percent, a union official said, two
months after the U.S. miner halted exports over a dispute with
the government on a new tax.
Freeport's Indonesian unit runs the world's fifth-largest
copper mine in remote Papua and any prolonged stoppage in
production would be supportive for global prices of the base
metal, while increasing the risk of layoffs in a volatile area
with a simmering separatist movement.
Freeport and fellow U.S. miner Newmont Mining Corp
have refused to pay an escalating export tax introduced on Jan.
12 as part of package of new mining rules aimed at forcing
miners to build smelters and process raw materials in Indonesia.
"Although Freeport Indonesia has cut production by around 60
percent, Freeport management has not yet announced any layoffs
so far," Papua-based Freeport union official Virgo Solossa told
Reuters by telephone.
"They are still waiting for a government decision on an
export tax relaxation," he said, adding that copper concentrate
processing facilities were now working at one-third of capacity.
A Freeport spokesman said that since mid-January, the
milling rate at its Indonesian operations has averaged around
112,000 tonnes of ore a day, which is about half of the normal
PT Freeport Indonesia has implemented these near-term
changes to coordinate its concentrate production with the
operating plans of PT Smelting, company spokesman Eric Kinneberg
said in an email, referring to the country's only copper
It was unclear how long the production cut would remain.
Freeport late last month said it may need to declare force
majeure on copper concentrate sales at Grasberg.
The Arizona-based company has been locked in talks with the
government for weeks over the controversial export tax on
mineral concentrates, which rises from 25 percent this year to
up to 60 percent by the second half of 2016.
Disputes and confusion over the new export rules have halted
about $500 million worth of monthly mineral ore and concentrate
exports from Southeast Asia's biggest economy.
Freeport says that the tax breaches their contracts,
although the government has hinted that it may review the tax if
Freeport makes a firmer commitment on the construction and
supply agreements for new smelters.
Freeport and state-owned PT Aneka Tambang have
joined forces to study the possibility of building a copper
smelter but this is expected to take months before it is
The company currently ships about 40 percent of its copper
concentrates production to PT Smelting at Gresik.
Freeport said in December that if it was only allowed to
send shipments to PT Smelting, the company would have to cut
output at its Grasberg mine in Papua by 60 percent and lay off
thousands of its employees.
In metal markets, three-month copper on the London Metal
Exchange climbed about 0.7 percent to $6,696.50 a tonne
on Tuesday, off Monday's trough of $6,608 a tonne - its lowest
since late June.
"Ultimately, the metal market balance would not be tight as
a result of Freeport processing at a lower rate over the course
of a few weeks," said a source at a Singapore-based trade house.
"If they were to come out to declare a force majeure and say
that they were going to be operating at a substantially reduced
rate for many months to come, yeah it might help sentiment."
Freeport's shares were down 2.5 percent at $30.60 on the New
York Stock Exchange on Tuesday, along with other base metals
stocks, hurt by copper's slide to its lowest levels in more than