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* Grasberg output halved as result of industrial action
* Freeport says 840 striking workers lost jobs, more may
* Union says layoffs breach Indonesian labour law (Adds comment from Freeport, context)
By Agustinus Beo Da Costa and Samuel Wanda
JAKARTA/TIMIKA, Indonesia, May 20 (Reuters) - An estimated 9,000 workers at the giant Grasberg copper mine operated by the Indonesian unit of Freeport McMoRan Inc will extend a strike for a second month, a union official said on Saturday, in an ongoing dispute over employment terms and layoffs.
Freeport is at loggerheads with Indonesia over rights to the Grasberg mine in Papua in a dispute that has cost both sides hundreds of millions of dollars, and tensions with workers threaten to disrupt the mine's operations further.
Freeport resumed copper concentrate export shipments from Grasberg late last month after a 15-week outage stemming from the dispute with government and had planned to ramp up production after it was cut by around two-thirds during the outage.
As of mid-April Freeport had "demobilized" around 10 percent of its Indonesian workforce of 32,000 among efforts to cut costs resulting from the dispute. The company has repeatedly warned workers that striking will result in disciplinary action.
The union has demanded an end to Freeport's furlough policy and began a 30-day strike on May 1 in an effort to get workers' jobs back.
"We will extend the strike for 30 more days," Freeport Indonesia union industrial relations officer Tri Puspital told Reuters on Saturday, referring to a government recommendation for a resolution of the matter.
"We regret the stance of the businessmen who unilaterally laid off workers," Puspital said. "It is a kind of discrimination in terms of disciplinary action."
According to Puspital, output from Grasberg has been reduced by half as result of the strike, but he stopped short of providing further detail.
In a Freeport inter-office memo titled "Making the Right Choice for Your Family and You" obtained by Reuters, the company said the strike was illegal and that "voluntary resignation is the consequence" for workers that ignored demands to return to work and were absent for five consecutive days.
"Already, 840 workers have suffered this consequence and others will follow if they do not immediately contact the company," the memo dated May 15 said.
A U.S.-based spokesman for Freeport referred to a recent statement in response to Reuters questions on the strike and its impact on operations.
Worker absenteeism since mid April "has unfavorably impacted mining and milling rates," it said, noting that the company "is working with union leaders, with the support of Indonesian government officials, to encourage a safe and efficient return to normal operations for the benefit of all stakeholders."
"Freeport Indonesia plans to ramp up its production to full rates during second-quarter 2017," it said. (Additional reporting by Susan Taylor in TORONTO; Writing by Fergus Jensen, editing by Louise Heavens)