Mineweb, 17 October 2011
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.
Author: Lawrence Williams
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
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