February 14, 2017 / 5:02 AM / 6 months ago

UPDATE 2-Freeport cuts output at key Indonesia copper mine

* Copper concentrate production halted since Friday

* Exports could resume next week -govt official

* Freeport hopes to gain new investment guarantees (Recasts; adds government comment)

By Fergus Jensen

JAKARTA, Feb 14 (Reuters) - Freeport-McMoRan Inc has halted production of concentrate at the world's second-largest copper mine in Indonesia and has begun to send workers home, a spokesman for the company's local unit said on Tuesday.

The Southeast Asian nation on Jan. 12 introduced rules restricting copper concentrate exports in a bid to boost its domestic smelting industry.

Freeport previously said the suspension of concentrate exports would require the Grasberg mine to slash output by around 70 million pounds of copper per month.

The halt comes at the same time as a stoppage at the world's biggest copper mine in Chile, fueling supply worries and helping support prices for the metal near 20-month highs touched on Monday.

"The processing plant has not been producing concentrate since last Friday," Freeport Indonesia spokesman Riza Pratama told Reuters on Tuesday.

The world's biggest publicly-traded copper miner has also started sending workers home from Grasberg, he added.

The company previously said it would need to cut production to about 40 percent of capacity if it did not get an export permit by mid-February, due to limited storage.

But a strike at Freeport's sole domestic offtaker of copper concentrate, PT Smelting, expected to last at least until March, has limited Freeport's output options, and Grasberg's storage sites are now full.

Under new regulations announced in mid-January, Freeport and some other miners could be allowed to keep exporting semi-processed ores and concentrates if they meet conditions including shifting from their current 'contracts of work' to so-called 'special mining permits', a move that could leave them liable to paying more in taxes.

Although the government said on Friday it had issued the new mining permit, Freeport said no agreement had been reached on the terms that were "necessary and critical" for its long-term investment plans, and that an export ban remained in place.

Freeport was still seeking "investment stability guarantees from the finance ministry", a mining ministry official told Reuters on Tuesday, declining to be identified as he was not authorised to speak with media.

Another official at the ministry said on Tuesday that Freeport's exports could resume as soon as "next week" once it applied for an export permit.

"We have provided a way for them," Coal and Minerals Director General Bambang Gatot told reporters, referring to the new mining permit. "Their operations can continue," he said, stopping short of providing details.

Gatot, who was unaware of the production stoppage, declined to say whether terms under Freeport's existing contract would still be applied.

In 2014, Freeport's Indonesian copper concentrate exports were suspended for six months while it negotiated new mining rules. (Additional reporting by Wilda Asmarini in Jakarta; Writing by Susan Taylor in Toronto; Editing by Tom Hogue and Joseph Radford)

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