International News

By Michael Taylor and Yayat Supriatna

JAKARTA (Reuters) - Freeport McMoRan Copper and Gold Inc said it will not restart production at the world's second-largest copper mine in Indonesia after a tunnel collapse that killed 28 workers until it is convinced of the mine's safety.

Arizona-based Freeport suspended operations at the remote Papua mine on Wednesday last week, at a cost estimated at about $15 million a day in lost production, a day after a training tunnel away from its main operations fell in on 38 workers.

Ten workers were saved, but rescuers on Wednesday gave up hope of finding more survivors and the search for seven workers still listed as missing has turned into an attempt the retrieve their bodies.

"We're not going to let people go back until we're comfortable they're safe and that will be done in cooperation with the union and the rest of the workers," Freeport CEO Richard Adkerson told a news conference at Indonesia's mining ministry in Jakarta.

Freeport said it was too early to say when production would resume.

"We have not decided on when we will start the operation again because we are still focusing on how to solve the problem," Rozik Soetjipto, president director of Freeport Indonesia, said, referring to the cause of the tunnel collapse.

Investors are concerned the accident, one of the country's worst mining disasters, could further strain relations between Freeport and trade unions after a three-month strike in late 2011 and smaller disputes since.

The Grasberg mine, which also holds the world's largest gold reserves, normally produces around 220,000 tons of concentrated ore a day. Around 140,000 tons comes from open pit mining and 80,000 tons from underground operations, the firm said.

Indonesia has ordered an independent investigation into the accident and will also check all other underground mining facilities in the country, said Jero Wacik, Indonesia's energy and mineral resources minister, without elaborating. He did not say when the government may decide on whether to reopen the mine.

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.

LIMITED IMPACT

The suspension of operations at Grasberg follows Rio Tinto's decision to suspend work at its Bingham Canyon copper and gold mine near Salt Lake City, Utah, in early April after a land slide.

The impact of the Grasberg closure on global copper supply has so far been limited as the mine complex keeps stockpiles in reserve in case of disruptions, although that would change if the closure drags on.

Benchmark three-month copper on the London Metal Exchange traded at $7,391.50 a ton on Wednesday, down slightly from where it was trading before the mine closure.

The impact on Freeport's stock has also been limited. Freeport shares closed at $31.98 on Tuesday, having held to a fairly tight range in recent days.

Still, analysts are concerned that the mine could face a prolonged closure. Freeport has said it would only reopen with government permission.

Mining industry sources say the tunnel collapse has also raised fears that a planned underground expansion by Freeport may prove more complex than first thought, putting at risk its aggressive production targets over the next few years.

"The tunnel was deep underground. The ore body is deeper still. The collapse suggests actually getting in there could be problematic and that Freeport will have to curtail its production estimates," said a mining industry source in Singapore.

Freeport Indonesia has forecast sales of 1.1 billion pounds of copper and 1.2 million ounces of gold in 2013, up 54 percent and 31 percent over 2012, respectively.

At current prices, the forecast production equates to an expected output of about $10 million of copper and $4.7 million of gold of day, according to Reuters calculations.

The expected rise in sales is due to higher ore grades and a ramp up in production from underground operations.

(Additional reporting by Randy Fabi in Jakarta and Melanie Burton in Singapore; Writing by Randy Fabi; Editing by Richard Pullin)