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= FOCUS:Deadly Protests Highlight Grasberg Mine's Risks(Comtex Finance Via Thomson Dialog NewsEdge)Mar 17, 2006 (Dow Jones Commodities News via Comtex) --James Attwood Of DOW JONES NEWSWIRES SYDNEY (Dow Jones)--Freeport-McMoRan Copper & Gold Inc. (FCX) said Friday it's business as usual at the Grasberg mine in Indonesia despite four deaths Thursday in protests against the giant gold and copper mine. "There's no disruption or impact on the mine operation," Freeport's Indonesian spokesman Mindo Bangaribuan said. "The incident happened in (the port city of) Jayapura about 500 kilometers northeast of the mine." But the deaths of four uniformed officers, reportedly in clashes with protesters demanding the mine's closure, is likely to raise the stakes in the already tense Papua province political scene and in doing so, may increase Grasberg's risk perceptions. This week's violent demonstrations in Jayapura, which some link to local elections, follow a road blockade at the mine site early this month, which shut down operations for three days. Grasberg also shut in 2003 when a landslide killed several workers, while in 2002 three teachers employed by Freeport were ambushed and killed on a company road. Indonesia's government and some analysts say the mine and its U.S-based operator are being used by secessionists as symbols of inequality between the capital and Papua in order to whip up support for their cause. Protesters argue Grasberg does nothing to benefit local communities in the area while Freeport says it has paid US$190 million in the last 10 years, including US$40 million last year alone, into community development programs. On Thursday Indonesian President Susilo Bambang Yudhoyono was reported as saying demands to close Freeport are unrealistic, but that authorities would study the company's community programs to see if "funds could be distributed more evenly." Yudhoyono also reiterated Papua, formerly known as Irian Jaya, will never be granted independence. That view is supported by Freeport's share price, which is currently more than double its net present value in line with blue chip miners, according to Tony Robson, an analyst at Sydney-based Global Mining Research. "Of the 60 or 70 companies we look at globally, Freeport is way up there in terms of premium rating...people talk about country and mine risk but there's absolutely no discount applied to Freeport stock," Robson said. "The stock price seems to tell me there is zero chance of secession, therefore zero chance of change of rules, therefore zero chance of closure." Opinion Split On Future Of Rio Stake Other analysts, however, said the mounting political tensions surrounding Grasberg, combined with question marks over Freeport's environmental performance and its direct payment of soldiers to guard the mine, may be pressuring Rio Tinto Plc (RTP) to offload its 40% stake. "Having Grasberg flies in the face of Rio Tinto's corporate ethos...as soon as they have something to replace it, I think they'll exit," said one resources analyst who declined to be named. The joint venture's structure means its contribution to Rio Tinto's operating earnings is expected to shrink from around 4% or US$230 million last year to 1% or less next year, before returning to the long-run level of around 2%-3%, according to Macquarie Equities. Nevertheless, Macquarie's Brendan Harris said Rio may not be in any rush to sell given its heavy leverage to low risk assets in Australia and the U.S., which means "they can take a bit of risk on their portfolio." In addition, an exposure to copper and gold at current prices may be preferable than an asset sale given the company's strong cash position, he said. "There are a lot of issues at play but the most important is the safety of their own staff, and at this stage, the operation has been largely unaffected," said Harris. Rio Tinto itself said Friday the recent violence doesn't change Grasberg's status as a significant core asset in its portfolio. "It's something that Freeport has to work through, but it doesn't change anything as far as Rio Tinto is concerned," a Melbourne-based spokesman for the company said. "We would hope it never gets to that point," he said when asked if the political situation could eventually force the company to sell. Concerns over Grasberg's future is impacting sentiment in tight metal markets, however, since the mine churns out a massive 9,000 ounces of gold and 1,800 tons of copper a day, traders and analysts say. More so than gold, fundamentally-driven copper is prone to supply side disruptions given historically low stock levels, despite recent rises. At 0620 GMT the red metal was trading at $4,965 a ton on the London Metal Exchange, up $35 on the day and apparently bound for the psychologically important $5,000 level. -By James Attwood, Dow Jones Newswires; 612-8235-2957; [email protected] -Edited by Denny Kurien (END) Dow Jones Newswires 03-17-06 0245ET |