Freeport Indonesia Union to Sign Deal to End Strike-sources

JAKARTA, KOMPAS.com - Freeport McMoRan Copper & Gold Inc and its Indonesian workers’ union expect to sign a pay deal on Tuesday to end a three-month strike that has crippled production at the world’s second-biggest copper mine, two sources told Reuters.

The two sides have agreed to a pay rise of about 40 percent over two years to end Indonesia’s longest-running industrial dispute, and will soon sign the agreement in Jakarta, said the sources, who declined to be identified because the deal was not public.

The Freeport strike has been the highest profile stoppage among a spate of worker pay protests in Indonesia on signs of growing unrest over rising costs and a sense that the country’s economic success is not being shared be all. Freeport did not immediately respond to Reuters queries seeking comment.

It was not clear when the U.S. firm would be able to resume production at the remote Grasberg mine or end a force majeure declared in October on exports, which helped boost copper prices.

“We will sign the deal today,” said one source. “From the Freeport management it is going to be Armando Mahler,” the source said, referring to the CEO of Freeport Indonesia.

Prices for copper, used in power and construction, have fallen by about 12 percent since the stoppage began on Sept. 15, mostly due to uncertainty surrounding the European debt crisis, though supply worries have helped limit the price fall.

“It is positive for copper mine supply...it should be negative (for prices)... It is good news for (Chinese) domestic copper smelters,” said Grace Qu, China-based copper consultant for CRU.

Benchmark copper prices on the London Metal Exchange fell after Freeport news to $7,595 a tonne by 0455 GMT, down from $7,606 at Monday’s close. The union initially asked for pay to be raised to as much as $200 an hour, versus current pay of around $2-$3 an hour.

It had steadily dropped its demand in recent weeks to around $7.50 an hour, a level still deemed “excessive” by Freeport’s CEO Richard Adkerson, who has been in Jakarta to help broker a deal.

Many Freeport Indonesia workers, who are mostly Christians, had been worried they would not be able to afford to celebrate Christmas due to the strike, since they are not getting paid, leading to a push for a deal in the past week.

The pay deal could spur workers elsewhere in Indonesia to press for higher wages in Southeast Asia’s largest economy. The 40-percent pay rise is twice the size of one awarded by Jakarta’s governor in late November to avert a strike by more than 85,000 workers.

“If somebody asks for more, everybody will follow. That’s a fact,” Alwin Lubis, president director at Indonesian miner Aneka Tambang told Reuters recently.
“That is what we’re worried about.”

Sofjan Wanandi, chairman of the Employers’ Association of Indonesia, sees strikes over pay as a growing economic risk, when expectations are high that the country’s credit rating will soon be upgraded to coveted investment status. “Businesses will reconsider their expansion and investment plans, as well as plans to relocate factories from China,” he said recently.

Copper price talks

The mine, in Indonesia’s eastern Papua region, also has the world’s biggest gold reserves and produces silver. Freeport had warned investors it may not achieve its fourth-quarter production and sales targets owing to the strike.

It had expected sales of 185 million pounds of copper and 280,000 ounces of gold from Grasberg in the fourth quarter. Papua has seen a long-running independence movement over resource revenues, and striking workers have been joined by spear-wielding tribesmen to blockade Freeport’s supply routes.

While the pay deal is likely to end a blockade on the company’s supply of food and fuel, restarting exports will take longer since the company needs to repair its main pipeline carrying metal concentrate to its port. The pipe was sabotaged and repairs were hampered by the security situation.

However, the resumption of Grasberg output is likely to give copper processing smelters bargaining power in talks with mines over treatment and refining charges (TC/RC) for converting concentrate into refined metal.

“The settlement of the strike will give smelters a bit of an edge in TC/RC discussions,” said Nick Trevethan, senior commodities strategist at Australia and New Zealand Bank.

Freeport agreed a term TC/RC of $63.5 a tonne and 6.35 U.S. cents a pound for clean, standard copper concentrate for delivery in 2012 with major Chinese smelter Jiangxi Copper and Japanese smelter Pan Pacific Copper . The fees were 12.4 percent higher than this year’s charges.