* 2017 daily ore output estimate cut by a third -memo
* $1 bln/yr underground expansion investments shelved -memo
* 'Painful but necessary' for company survival -memo
(Recasts, updates on smelting operations)
By Fergus Jensen
JAKARTA, March 1 Freeport-McMoRan's
Indonesian unit sees "no returning to business as usual", an
internal company memo said, as the miner cut output and laid off
workers at its giant Grasberg copper mine in a battle with
Jakarta over mining rights that has paralysed its operations.
Freeport's Indonesian unit has shelved plans to invest $1
billion a year in long-term underground expansion at the world's
second-biggest copper mine, the company said in a memo to all
staff on Feb. 28, citing a stoppage to Grasberg exports since
mid-January resulting from changes to Indonesian mining rules.
Copper ore output from the Grasberg mine in Papua will be
cut to 95,000 tonnes a day in 2017 from 140,000 tonnes
previously estimated, it said in the document reviewed by
"This is not the direction we want to go, as these
investments are needed to build our future business and would
provide continued economic growth in Papua and thousands of job
opportunities for decades, beyond the completion of the Grasberg
open pit," it said.
Copper concentrate production at Grasberg has been stopped
since Feb. 11, and ore output is currently limited to
stockpiling for future processing. A transition from open pit to
underground mining at Grasberg may now be postponed to beyond
Freeport, the world's biggest publicly listed copper
producer, warned last week it could take the Indonesian
government to arbitration and seek damages over the dispute.
The company's chief executive, Richard Adkerson, said on
Monday that regulations Indonesia issued on Jan. 12 requiring
Freeport to forfeit its long-term mining rights before resuming
exports, were "in effect a form of expropriation".
Asked about the memo, a Freeport Indonesia spokesman said
Grasberg's "operation and production is reduced to adjust to
Smelting Gresik capacity".
Operations at Freeport's sole domestic buyer of copper
concentrate, PT Smelting in Gresik, East Java, resumed briefly
on Wednesday after a six-week halt that has limited Grasberg's
output options. Operations stopped again due to a technical
In the memo, Freeport said that over the past month it has
revised its operating plans, slowed its underground expansion
and announced "drastic reductions" to manpower levels in efforts
to cut costs.
"These are painful but necessary measures the company needs
to survive while it works with the government to achieve a
mutually acceptable solution to resume exporting copper
concentrate," it said.
"The outcome of our negotiations with the government will
not change this. There is no returning to 'business as
usual,'"it said. The changes represented "a fundamental shift"
in how Freeport operates, it said.
Production of copper concentrate has yet to resume at
Grasberg as a result of the export stoppage, a company source
with direct knowledge of the matter told Reuters.
Indonesia's director general of coal and minerals, Bambang
Gatot, declined to comment on the changes in output. The
government often met Freeport to discuss its mining rights "but
there has been no conclusion yet," Gatot said.
Indonesian President Joko Widodo said on Thursday that the
government was seeking a solution to the Freeport issues that
benefited both parties.
Freeport CEO Adkerson said on Monday that he hoped and
believed the dispute will be resolved, "but we have to plan for
it not being resolved, and we're doing that."
"This is not a sweetheart contract for Freeport," he said,
referring to $16.5 billion in taxes, royalties and dividends
Indonesia has received from Freeport since it signed its mining
contract in 1991, while the company has taken $10.8 billion.
"We're all going to win together, or we're all going to lose
together, and I believe that's going to be the dynamics that
bring us to the table and reach a mutual agreement," he said.
Freeport estimated in January that Grasberg would account
for 1.3 billion pounds (589,670.081 tonnes) of its global copper
sales of 4.1 billion pounds in 2017, assuming exports resumed in
February. The export stoppage was expected to reduce Grasberg's
copper output by around 70 million pounds per month.
Freeport's export stoppage, coupled with a strike at BHP
Billiton's Escondida mine in Chile - the
world's biggest copper mine - pushed copper prices to
20-month highs of $6,204 a tonne on the London Metal Exchange in
(Additional reporting by Wilda Asmarini; Editing by Christian
Schmollinger and Kenneth Maxwell)