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Freeport Indonesia resumes underground mining, shipments

By Fergus Jensen

JAKARTA (Reuters) - Freeport McMoRan Copper and Gold Inc has resumed copper shipments from its Grasberg mine in Indonesia as it restarts open-pit and underground mining, but expects output this year to drop by a fifth following a near two-month stoppage.

A training tunnel cave-in killed 28 people at the world's second-biggest copper mine in May, shutting operations across the mine site while safety investigations were carried out.

Freeport had sent two shipments of copper concentrate to refineries in Indonesia and China since June, well below its normal 10 shipments a month, the company said [ID:nL4N0FG0MX].

"We will have a better outlook once we actually start underground mine production, maybe in a couple more days," Freeport spokeswoman Daisy Primayanti said.

Earlier, Freeport Indonesia President Director Rozik Soetjipto told reporters it would take one month for underground mining operations to return to full capacity, and that the mine was expected to produce only 80 percent of its targeted output of copper, gold and silver this year.

Before the accident, Freeport had expected sales of about 500,000 metric tons (1 metric ton = 1.1023 tons) of copper from its Indonesia unit in 2013, along with 1.25 million ounces of gold.

The government, which gave the go-ahead for open pit mining to resume last month, said on Tuesday its decision to allow underground mining to restart followed the completion of an independent investigation into the accident.

"From everything that has been done, that has been taken into consideration, including pressure from the community and local government, (we) have decided OK, it's safe," Deputy Energy and Mineral Resources Minister Susilo Siswoutomo told a joint news conference with Freeport.

Detectors will need to be installed to monitor rock conditions, stronger tunnel supports installed and increased maintenance of training areas will be needed to improve safety at the mine, the deputy minister said.

The Grasberg mine ships around 35 percent of its production for further processing in Indonesia, while the remainder goes to Japan, Korea, China and Spain, Siswoutomo said.

CONTRACT NEGOTIATIONS

Freeport declared force majeure - an inability to fulfill its contractual obligations due to circumstances beyond its control - on copper shipments after the accident.

This had yet to be lifted, Soetjipto said, adding Freeport would prioritize meeting its supply commitments for its Gresik smelter in Indonesia.

Open-pit mining has been running at full capacity since July 4. The Grasberg operation was currently producing around 160,000-170,000 metric ton of copper ore a day compared to 220,000 metric ton before the accident, Soetjipto said.

The open-pit mine normally produces between 140,000 metric ton and 150,000 metric ton of ore per day, while output from the underground operations is 80,000 metric ton.

Freeport is in talks with the government to renegotiate a new mining contract to replace its current 30-year contract, which expires in 2021.

The government hopes to conclude these talks this year, but experts doubt this will happen given the process has already missed its initial deadline by three years.

A member of the government team negotiating with Freeport said last week the accident should not delay those talks.

(Additional reporting by Michael Taylor, Maytaal Angel and Nadhila Renaldi; Editing by James Jukwey and Ed Davies)

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