Freeport's massive Grasberg copper/gold project under threat? - Remember Bougainville!
The current disruptions to production at the world's third largest copper mine and largest gold mine, Freeport's Grasberg, seem to be escalating with the mine temporarily shut down for security reasons.
Posted: Monday , 17 Oct 2011
The current problems being experienced by Freeport, operator of one of the world's most remote, spectacular and largest global mining operations at Grasberg in Indonesia's Irian Jaya province, highlight the difficulties miners can face, particularly in isolated, and/or contentious regions of the world. Indeed Freeport is no stranger to operating in areas of high political risk. As one of the world's top copper miners it also runs the big ultra-high grade Tenke Fungurume mine in the Democratic Republic of Congo, a country also not noted for its political stability. Freeport is also having problems at its Peruvian operation where the workers, as at Grasberg, are currently on strike and both the Peruvian and Indonesian governments are accusing the global miner of violating labour laws by replacing strikers. However, Freeport is geographically-diverse enough to mainly take such problems in its stride with major copper mines also in far less contentious areas like the USA and Chile.
The Grasberg mine, though, is still hugely significant to Freeport's global production of copper - and particularly of its principal by-product - gold. It is the world's third largest producers of copper and the effectively the world's largest gold mine, and contains the largest recoverable reserves of copper and the largest single gold reserve in the world. Open-pit mining of the Grasberg ore body began in 1990. Open-pit operations are expected to continue until mid-2015, at which time the Grasberg underground mining operations are scheduled to start. Grasberg is at the heart of a highly prospective minerals district, where ongoing exploration is providing opportunities to continue to add to long-lived reserves. Technologically, because of its remote and mountainous location, it has to be perhaps the world's most spectacular mining operations.
But this creates its own difficulties, notably of access and logistics with supplies and equipment mostly having to be brought in over a single principal access road which can be blockaded - and with feelings running high - in part because of an ongoing dispute with its workers, but also because of the often violent actions of a militant independence movement where a handful of guerrilla-type activists can have an undue impact because they can be almost impossible to track down in wild and forested terrain - Grasberg is particularly vulnerable.
The latest activity - and it is still uncertain whether this is because of the independence movement or escalating unrest due to the workers' strike, has seen three people shot and killed in the mine area - while the road access remains blockaded preventing essential supplies getting through to the operation. Some can be flown in, but essentials like fuel need to be trucked up to the mine and at some stage such actions can strangle the mine.
In the latest escalations the pipeline which takes the mine's copper concentrates to the export port has also been cut and because of this, and the security threat to company employees, Freeport has been forced to stop operations at the mine site - hopefully temporarily - until the situation is brought back under control.
What should be borne in mind though is the size of this operation. Last year - and this is one where there were some serious technical difficulties at the mine which cut output well below the previous year's levels, Grasberg sold no less than 1.2 billion pounds of copper at an average realized price of $3.69 per pound and 1.8 million ounces of gold at an average realized price of $1,271 per ounce.
According to a recent article in Time magazine, the operation has long been a flashpoint in the independence conflict. "The fight at Grasberg is, in many ways, about the fight for Papua itself." says the magazine. "The western part of the island of New Guinea was once a Dutch colony, but has been Indonesian territory since a highly contested 1969 plebiscite known as the "Act of Free Choice." Much of the indigenous Melanesian population opposes Indonesian rule and see the government-and their allies at Freeport-as occupiers."
The recent escalation has been compounded due to Indonesian police opening fire on striking workers and killing one and wounding several others. Freeport gets caught in the invidious position of thus, in the eyes of the strikers and the independence movement, of appearing to support the status quo (i.e the Indonesian government) and condoning such violent action. But it is difficult to see how a major mining company can do otherwise than work with the ruling force of law, while regretting the action of the excessively heavy handed police response.
But a word of caution here. Remember Bougainville. Here the operators (effectively Rio Tinto) of the Panguna mine, one of the then biggest copper mines in the world, were forced to abandon it in 1989 over another Melanesian independence dispute - this time with Papua New Guinea which has jurisdiction over the island. Only now, over 20 years later, does there seem to be any possibility of a resolution to this with the grant of autonomous status to the island's people and maybe, just maybe, there could be the possibility of the mine being re-opened at some point in the relatively near future.
There are, of course, some significant differences between Grasberg and Bougainville, not least being that the Indonesian government has far greater resources it can bring to bear in trying to bring matters under control than the PNG government had with Bougainville and no-one is suggesting, yet, that Freeport too may have to walk away from such a major operation. But the longer the current wage dispute rumbles on the more the potential for escalation and continuing disruption continues. Perhaps some light may be seen at the end of this particular tunnel though. Latest reports suggest that the strike leaders have reduced the level of their wage demands and although still well in excess of what Freeport might be offering do suggest some kind of compromise might be reached.
IPad version - Grasberg open pit - courtesy Wikimedia Commons Photo Credit Alfindra Primaldhi