Miner Freeport hit by double-whammy in Indonesia

Miner Freeport hit by double-whammy in Indonesia

by Steve James , NEW YORK (Reuters)

23rd March 2006

U.S. mining giant Freeport McMoRan Copper & Gold Inc. <FCX.N>, a recent target of protesters in Indonesia, was hit with more bad news on Thursday when a landslide killed three workers there and a government study criticized some of its environmental practices.

"Obviously this is a difficult time for us, but we are working to resolve all the issues," spokesman William Collier told Reuters.

The New Orleans-based company, which has been mining in Indonesia for decades, has been in the headlines for a variety of reasons recently since a fatal landslide at its Grasberg mine in Papua in 2003 disrupted production for nearly a year.

Grasberg, run by Freeport's Indonesian unit, has been a lightning rod for criticism and has been at the center of sometimes violent demonstrations in recent weeks.

Some environmental groups charge its waste pollutes rivers and streams and kills wildlife. However, the Indonesian government report, although it highlighted some problems over waste storage and called for stricter measures in managing acid water from the mine, did not mention any large-scale damage. It did say that tailings, or refuse after ore has been processed, had flowed through the nearby Ajkwa river.

The Grasberg pit, about 2,200 miles east of Jakarta, has also been a source of controversy over the share of revenue going to Papuans, the legality of payments to Indonesian security forces who help guard the site, and whether such an operation should be run by a foreign company.

Four policemen and a soldier were killed last week in the Papuan capital, Jayapura, in clashes with protesters demanding closure of the mine, one of a series of demonstrations in recent weeks across Indonesia that have criticized Freeport.

Thursday's mudslide came from a mountain above a service area adjacent to the pit and killed three contract workers. Mine production was not affected, company spokesmen said.

Spokesman Collier noted that, despite everything that has happened in the last few months, Freeport only lost three days of production at Grasberg.

Of the Indonesian environment ministry report, he said: "They acknowledged the effectiveness of our environmental management in some areas, but they also recommended improvements in others areas.

"We continue to improve our environmental efforts and have a very close relationship with the ministry."

On the recent protests, some of which involved native tribesmen armed with bows and arrows, as well as environmentalists, students and some illegal gold miners, he said: "They have been characterized in the press as being 'anti-Freeport,' but there are a number of issues."

These include not only environmentalists, but a pro-Papua independence movement and groups opposed to the Jakarta government.

"It is a complicated situation and clearly other agendas are involved," said Collier.

Mining analyst Victor Flores, of HSBC Securities, said that in the long-run, such negative events would likely have little effect on Freeport's operations.

"The landslide is regrettable, but it didn't affect operations. Mining is an industry where, unfortunately, people get killed," he said.

He noted that at the time of the 2003 landslide in which eight workers died in the Grasberg pit itself, Freeport's stock was not hurt too badly.

On Thursday, it was actually up $1.04, or 2.01 percent, at $52.72 in afternoon trading on the New York Stock Exchange.

The environmental issue was more problematic.

"I would hope it doesn't indicate some sort of pattern," said Flores, noting another U.S. gold miner, Newmont Mining Corp. recently settled with Jakarta over allegations of pollution.

"It appears that some environmental people may be on a crusade. (But) at the end of the day, Freeport has had a close relationship with the Indonesian government, which has been profitable for both of them.

"Freeport has been operating in the country efficiently for many years and I don't see it changing," he added.

(Additional reporting by Yoga Rusmana, Telly Nathalia and Muklis Ali in Indonesia)