November 2, 2011 / 2:36 AM / 8 years ago

RPT-UPDATE 2-Freeport says Indonesia mine operations lag Q4 goals

(Repeat of story published late on Tuesday) Adds analyst comment, background, stock moves, bylines)

* Grasberg mine operating at reduced rate, mill suspended

* Mining average of 120,000 tonnes per day

* Average below 175,000 needed to meet Q4 sales targets

* Stock drops 3.7 percent

By Olivia Rondonuwu

Nov 1 (Reuters) - Freeport-McMoRan Copper & Gold Inc said on Tuesday that production and processing rates at its strike-hit Grasberg nine in Indonesia have fallen below levels needed to meet fourth-quarter sales targets.

It also said it could take a month to fix its main sabotage-hit pipeline to take concentrate from the world’s second-biggest copper mine to its port, where there are no stockpiles left for shipping.

The announcements, plus a drop in the copper price, saw the company’s shares down 3.7 percent to $38.76 in late morning trading on the New York Stock Exchange.

“Freeport is clearly signaling further downside to fourth-quarter production,” said analyst Tony Robson of BMO Capital Markets, who estimated fourth-quarter production could be 32 percent lower than current estimates.

The Phoenix, Arizona-based company said the Grasberg open pit mine and the adjacent DOZ underground mine were operating at reduced rates using non-striking employees and contractors.

Since Oct. 22, it said, milling operations have been suspended pending repairs to sabotaged pipelines that transport copper concentrate from the mine in Papua to a seaport.

The company said it started repairing the damage but has not been able to gain full access to the affected areas because of road blocks by striking workers. It could take a month to fix, it said.

Freeport suggested it might not achieve fourth-quarter production and sales targets as a result. It has said it expects fourth-quarter sales of 915 million pounds of copper and 305,000 ounces of gold, of which 185 million pounds of copper and 280,000 ounces of gold are expected from Grasberg.

Those estimates were based on fourth-quarter mill throughput averaging 175,000 tonnes per day. But the average so far after one month of the quarter has been only 120,000 tonnes per day, the company said.

BMO’s Robson said assuming that 120,000-tonne rate runs to the end of the year, he calculates fourth-quarter production would be closer to 125 million pounds of copper and 192,000 ounces of gold — a 32 percent decrease on the current goal.

“On these numbers, Grasberg is estimated by BMO to contribute to approximately 35 percent of operating earnings in the quarter,” Robson wrote in a research note.

Earlier, Freeport said in Jakarta that no concentrate was heading from Grasberg to its port in the remote Papua region, implying the force majeure that it declared last week on some concentrate sales could be expanded or extended in length.

The company said it was evaluating the force majeure — under which it cannot meet delivery obligations — and declined to say which customers had been affected.

Freeport briefly halted production at Grasberg last month because of sabotage to the pipeline and said on Tuesday it is still only operating and producing ore at “reduced levels”.

The miner has been hit by attacks on equipment and staff and blockades to its food and fuel supply routes during a six-week strike by workers seeking better pay and conditions.

“Freeport has initiated repairs to the damaged pipelines but has not been able to gain full access to the affected areas of the pipelines because of the road blockades by striking workers,” said Freeport Indonesia spokesman Ramdani Sirait.

At a news conference on Tuesday, Freeport showed reporters pictures of unidentified people cutting pipelines, for both concentrate and fuel. Sources told Reuters that several pipelines have been cut in recent weeks, though it was not clear how significant these pipes are.

The firm is ordering replacement pipe to fix the 120-km long pipeline that snakes from the mountain mine to the port.

It was not clear whether the sabotage to pipelines was done by disgruntled workers or by members of a Papua independence movement, which has been simmering for decades in the province to seek a greater share of its resource wealth.

Milling operations have been suspended because of the pipeline damage, Sirait said, adding the strike is costing Freeport Indonesia, part owned by the Indonesian government, around $18 million-$19 million daily.

The central and local governments have tried to mediate pay talks between Freeport and the union, representing 8,000 workers. The union has rejected a 30-percent pay offer as it holds out for a five-fold increase.

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