John McBeth – A three month-long strike has paralyzed Freeport Indonesia's giant copper and gold mine in the Central Highlands of Papua. It has so far cost the company and the Indonesian government an estimated US$1.3 billion (S$1.7 billion) in lost revenues.

But there may be a lot more at stake than that. The Freeport Trade Union of Chemical, Energy and Mine workers, a branch of the nationwide All-Indonesia Workers Union (SPSI), initially demanded eye-popping base pay of between US$17.50 and US$43 an hour for non-staff, up from US$2.10 to US$3.50.

While it has since reduced its minimum demand to US$7.50, government negotiators have failed to bridge the gap to Freeport's offer of a 35 percent increase, or US$3.09, over two years; that translates into a monthly base pay of US$1,250 and US$2,150 – exclusive of about US$330 a month in metal bonuses, housing and health benefits and a new savings plan.

Freeport says annual take-home pay for non-staff currently hovers between US$19,000 and US$24,000, making them among the country's highest-paid union workers. That, however, is offset by the high cost of goods in far-off Papua, about 70 to 100 percent more than on Java.

With a 9.36 percent stake in the mine itself, the government is losing US$2 million a day in revenues and US$8 million in taxes and royalties, now expected to be sharply lower than the US$2.4 billion it was expected to receive this year from the country's biggest single taxpayer.

Union action has not been a serious problem in Indonesia for years. But with unemployment dropping to an officially recorded 6.8 percent and the economy growing at 6.5 percent, it may be only a matter of time before labour unrest begins to spread to other workplaces.

The mining industry, in particular, should have seen this coming. Historically high prices for copper, gold and nickel could not have gone on forever without workers wanting to share in the good fortune and not just settle for wages that keep pace with inflation.

In Freeport's case, the roots of the country's longest strike go back to October last year when a company mechanic called Sudiro emerged from 15 years of obscurity to win election as union chairman and set himself on a collision course with management.

He did not respond to e-mail messages seeking to confirm his family's reported links to that of influential First Lady Kristiani Yudhoyono, whose father, special forces chief Lieutenant-General Sarwo Edhie Wibowo, engineered the purge of the Indonesian Communist Party in the mid-1960s.

Whatever his connections, Sudiro clearly has charisma. Freeport was stunned when instead of mobilizing several hundred workers, as it initially thought, he persuaded 8,000, or the majority of the non-staff labour force – Papuans and non-Papuans alike – to join the strike.

While Sudiro's initial wage demands may have been outlandish, he points out that the Grasberg mine in Papua is a hugely more valuable resource than Freeport's other mines in North and South America, with copper and gold grades that are the envy of miners around the world.

Freeport stopped milling operations on Oct 22 – 37 days into the strike – when itinerant miners cut the 112km pipe carrying concentrate to the port and forced the company to declare force majeure on some of its sales contracts.

With the police and the army both benefiting from the largely unreported US$100 million-a-year enterprise, the 10,000 miners pan for residual gold in the river which carries the mine waste to a lowland deposition area near the boom town of Timika.

Now nothing is coming down the river, they have so far dug up at least 12km of the concentrate pipe. Each severed section is heated and then scraped clean of the rich coating of copper and gold slurry sticking to the inside.

Until then, the mine had been producing 50 to 70 percent of its normal output, using 3,000 contractors and about 1,300 non-striking workers. But when the flow of concentrate dried up, daily mine losses rose from US$7 million to US$19 million.

The Grasberg had been expected to contribute 185 million pounds of copper and 280,000 ounces of gold to the parent company's total fourth quarter sales estimates of 915 million pounds of copper and 305 million ounces of gold.

London metals analysts say the strike has led to a tightening of the global concentrate market, directly affecting India, Japan and, to a lesser extent, South Korea. Falling output at Chile's Escondida mine has also been a contributing factor.

With the talks at a virtual standstill and negotiators talking only vaguely of a settlement 'before Christmas', many of Timika's 200,000 residents have begun to hoard household supplies in preparation for what they fear may be a violent showdown.

But after the killing of two workers in a confrontation last month, and the new publicity surrounding Freeport's long-known US$14 million contribution to the cost of guarding the mine, the police will only be seen to be acting in the firm's interests if they try to remove the strikers' roadblocks. At it stands now, everyone is a loser.