Q+A-Attacks at Papua mine: what is the impact on Freeport? PDF Afdrukken

JAKARTA, July 24 (Reuters) - A series of shootings this month near Freeport-McMoRan Copper & Gold Inc's massive Grasberg mine in Indonesia has raised concerns over the possible impact on the mine's operations.

Grasberg has the world's largest recoverable reserves of copper, accounting for nearly 40 percent of Freeport's total copper reserves of 93 billion pounds, and the largest gold reserves.

Freeport said the shootings have not affected production.

Papuan police said on Friday that two people had been killed in shooting-related incidents this month: Australian technical expert Drew Grant and an unnamed security guard. At least 10 people were wounded, including seven police.

Here are some questions and answers about the situation:


Probably money.

With its vast natural resources -- copper, gold, timber -- Papua has long been regarded as a honeypot, and Freeport is Indonesia's top tax contributor, paying $1.2 billion in royalties and other taxes in 2008.

For years, Indonesia's military ran various business interests on the side to supplement their low pay, and were particularly active in resource-rich Papua and Aceh.

The Indonesian government is responsible for providing security arrangements for the Grasberg mine, deploying about 1,850 government security personnel. Freeport Indonesia, the local unit, contributed $8 million last year in support costs, covering food, housing, fuel, and other allowances.

Analysts say the recent outbreaks of violence are most likely due to conflicts between the police and the military over these security arrangements and related business ventures.

The attacks may be intended to force the government or Freeport to increase security, or to pay more to those providing it, or increase the presence of one faction over another.

They could also be related to who has access to tailings from the mine or illegal mining in the area, as these may provide an additional source of income.

Defence Minister Juwono Sudarsono told reporters that "criminal groups" could be responsible because they want to carry out gold panning in the area, earning as much as $3,500 a month from such activities, a very high sum by Indonesian standards.

The West Papua Advocacy Team, a rights group, said a fight between the military and the mobile police brigade, Brimob, could be the reason for the attacks.

"Brimob is pretty much running the illegal gold mining, access to the tailings. That has been a constant source of irritation because Freeport is trying to get the military to shut down the tailings. So perhaps Brimob is concerned about that," said spokesman Edmund McWilliams. 


Few analysts believe these attacks have anything to do with the OPM, which has waged a low-level insurgency for decades and which is generally thought to be poorly armed.

The attackers in the recent shootings appeared to use weapons similar to those used by the military, although they could have been stolen from the military.

"Typically, if they are going to stage attacks, OPM don't stick around to attack again and again. And some of the people who have been detained are not Papuans; the notion that you have non-Papuans in the OPM doesn't make sense," McWilliams said.

In 2002, two American teachers and their Indonesian companion were killed in an ambush outside the Freeport installation. A Papuan separatist received a life sentence and six others were handed shorter jail terms, but the incident also sparked suspicions the Indonesian military were involved.


So far, Freeport says it has not affected production.

Freeport said on its website it expects its Indonesian unit to sell 1.3 billion pounds of copper and 2.2 million ounces of gold this year, up from 1.1 billion pounds of copper and 1.2 million ounces of gold in 2008.

In the first six months of 2009, Freeport Indonesia produced 807 million recoverable pounds of copper, surging from 422 million pounds in the same period last year.

Foreign reporters require special permission to visit Papua and it is difficult to obtain accurate information about what is happening on the ground.

However, so far, all the attacks have taken place on a winding stretch of road between the area where some of the mine workers live and the mine itself.

Vehicles travelling along this route are exposed: they have to drive slowly, which means they are vulnerable to snipers in the surrounding countryside.

Freeport has been taking its workers up in convoys, protected by guards, but on one occasion when the convoy came under fire, they had to turn back. If the attacks remain low-level, it is unlikely this would have much impact on the mine's operations.

Most of the mine workers and key staff live on-site up at the mine.


If many more people are killed, Freeport may have to stop transporting workers along this route, in which case it could potentially affect staffing at the mine and impact production.

Alternatively, mine-workers may become so concerned about their safety that they refuse to travel this route.

Freeport employs about 21,053 workers and contractors in Papua, one of the poorest parts of the Indonesian archipelago, so there are strong economic reasons why workers may be prepared to take the risk.


On a conference call with Wall Street analysts this week, Freeport's chief executive officer, Richard Adkerson, said six people had been charged with murder in the killing of the Australian worker. [ID:nN21367229]

Human rights organisations have raised concerns that those detained may not be the real perpetrators but could be convenient scapegoats as the authorities rush to solve the problem.

"A race to find scapegoats appears under way," the U.S-based West Papua Advocacy Team said in a statement. (Reporting by Sunanda Creagh and Fitri Wulandari; Writing by Sara Webb and Ed Davies; Editing by Michael Urquhart)