Picking up the pieces: Indonesian mine collapse

Freeport McMoRan’s Grasberg mine is both the biggest gold mine and the third largest copper mine in the world. Located in the remote highlands of the Sudirman Mountain range in Papua, Indonesia, the minerals region includes open pit and underground mines.

According to Freeport, production is predicted to accelerate over the years to around 240 000 tonnes of ore a day after the expected underground transition from the Grasberg open pit in 2017, and a bright future is forecast.

But the copper gold mine has been plagued with problems over the past couple of years. In October 2011 workers went on strike demanding increase in pay.

Seventy per cent of the workforce went on strike for three months, blocking roads, fighting police and cutting pipelines at several locations.

They only agreed to return to work once the wage dispute was settled.

Around 1100 workers again went on strike over wage disputes earlier this year. The workers, mainly subcontractors, put down tools and demanded better pay.

But the most recent incident to befall Grasberg mine was the worst, and something from which it is still attempting to recover. A tunnel collapsed on May 14, instantly killing two workers and trapping another 31, with the final death toll climbing to 28.

The group were training in a classroom at the Big Gossan underground training facility when the tunnel caved in.

Falling rocks hampered the rescue process, as teams attempted to stabilise the ground and roof in the tunnel. Rescuers could see people amongst the rubble but could not reach them due to the mine instability and danger of further collapse.

While ten injured workers were initially saved, nine others were still missing or feared dead.

All operations stopped the day after the collapse in solidarity with the victims and to focus on rescue work. Around 1000 workers barricaded a main road about three kilometres away from the mine site to show support for the victims.

They also wanted increased safety in the underground facility.

Indonesian President Susilo Bambang Yudhoyono ordered Freeport and government agencies to conduct an exhaustive investigation into the accident.

Indonesian government officials and a Freeport spokesman said the company cannot resume production at the copper mine until investigations are completed.

“The investigations team formed by the government arrived in Tembagapura yesterday morning [May 30] and I hear reports from the site that they have started by going to ground zero and doing investigations there,” Freeport Indonesia corporate communications chief Daisy Primayanti said.

“They are indicating to us that they will be completing the investigation in two months.”

Following investigation the company suspended four senior employees, including three foreigners, after employees blamed them for the tunnel collapse.

Safety compromised

Prior to the collapse another mine worker died early June after a safety violation, leading a union head to tell its members to stop work at the copper mine.

Freeport union official Virgo Solossa demanded all activity be suspended at the site and called for an investigation into safety systems.

This incident was under investigation at the same time.

“(Freeport must) stop all production activities except for maintenance until the results of the independent investigation are completed,” Energy and Mineral Resources Ministry director minerals Dede Suhendra said in a text message.

The company called for force majeure on shipments from Grasberg in June under its concentrate sales agreements, saying it could not meet contractual responsibilities due to events beyond its control.

Freeport estimates impact on production between May 15 and June 21 was around 115 million pounds of copper and 115,000 ounces of gold. That amounts to 3 million pounds of copper and 3000 ounces of gold a day for the 38-day period.

“PT-FI is actively working with government authorities on a return to full operations and will update its production outlook as additional information becomes available,” the company said in a statement.

Further suspension of underground operations would have cost the company one million pounds of copper and 1,000 ounces of gold a day.

But the Indonesian government allowed Freeport to resume operations once state officials completed their investigation a month after the tunnel collapse.

“The resumption of production activities is being conducted in a phased approach,” the company explained.

“Open-pit and milling operations have commenced initially and underground operations are expected to be ramped up upon further approvals and inspections from the Department of Energy and Mineral Resources.”

The company said it has carried out safety inspections in its operations and is working with government authorities to begin operations as soon as possible.

“At the beginning of course, there will only be a very, very small amount of production because we have to prepare everything and gradually increase production,” Freeport Indonesian president director Rozik Soetjipto said.

Freeport is starting underground operations on July 10, after receiving permission from the energy ministry.

Energy and Mineral Resources Minister Jero Wacik recently told The Jakarta Post that despite concerns, the mine is ‘safe enough’. He said while the hillside site needs ‘close attention’, its open-pit mine is still safe for operations.

Wacik said Freeport wrote a letter to the Indonesian government asking for permission to resume open-pit mining.

Moving on

Meanwhile contract renegotiations between Freeport Indonesia and the government are back on the table after being suspended following the tunnel collapse.

Trade minister Gita Wirjawan is one of the members of the negotiating group, led by chief economics minister Hatta Rajasa.

Wirjawan is looking to wrap up discussions as quickly as possible, and hopes “that there will be a meeting of minds between both sides”.

However the Indonesian government wants a larger share of royalty payments, a pledge on domestic processing, and more divestment by foreign miners as part of its new mining negotiations.

These requirements have delayed contract renegotiations.

Now on the back foot, Freeport said it does not wish to invest in a new underground mine unless it has a new contract with Indonesia after 2021.

Open-pit mining at Grasberg will finish in 2016, five years before its current mining contract expires, leaving both the company and the government empty handed.

Added to this are rising costs as well as forecast expenses of $15 billion to convert the complex into a large underground mine, which is predicted to have a mine life of 50 years.

Recalling the collapse Wirjawan said: “It is tragic what happened, but Indonesia needs to be cognizant of where it needs to be going forward as an economic relevance to the world.”

“It is important for a conclusion to be reached sooner rather than later because it will reflect upon the desires of both Freeport and the Indonesian government.”

Arizona-based Freeport McMoRan owns 90.64 per cent of the mine, including 9.36 per cent owned through its wholly owned subsidiary PT Indocopper Investama. The Indonesian Government owns 9.36 per cent.

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