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Freeport declares force majeure at Indonesia copper mine

(Adds analyst comments and view on copper price increase, closing stock price)

By Susan Taylor

TORONTO, Feb 17 (Reuters) - Freeport-McMoRan Inc said on Friday it cannot meet contractual obligations for copper concentrate shipments from its Grasberg mine in Indonesia following a five-week export ban, the second big producer in a week to declare force majeure.

Production at Freeport's giant mine in Papua, Indonesia, came to a standstill last week after the government banned copper concentrate exports on Jan. 12, part of an effort to boost Indonesia's smelter industry.

BHP Billiton (NYSE: BBL - news) 's Escondida in Chile (Stuttgart: 704599.SG - news) , the world's largest copper mine, declared force majeure on Feb. 10, two days into a strike that halted output.

"Those two mines are currently offline and that's about 2 million tonnes - almost 10 percent of global copper supply – which is a big deal," Jefferies analyst Chris LaFemina said.

Grasberg was expected to produce 800,000 tonnes of copper in 2017, about 3.5 percent of global supply, he said.

For each month the mine is offline, the world copper supply is reduced by some 90 million pounds, said LaFemina, who adds Freeport's 70-million-pound share to a share for joint venture partner Rio Tinto (Hanover: CRA1.HA - news) .

Copper prices, which have surged to 20-month highs on supply worries, slipped to $5,960 a tonne on Friday on profit-taking. But strong demand from top consumer China and supply disruptions are expected to help support prices.

If the two mines remain halted for a month, prices could pop up to $3 a pound from $2.70 currently, LaFemina said.

Shares (Berlin: DI6.BE - news) of Freeport, the world's biggest publicly traded copper miner, declined 1 percent Friday to close at $14.91.

Under new Indonesian mining rules introduced in January, Freeport must switch from its current contract of work to a special mining permit before applying for export permits.

The new permit would require Freeport to pay taxes and royalties it was previously exempt from and divest up to 51 percent of its Indonesian unit, an increase from a previously set 30 percent. To date, it has divested 9.36 percent.

The permit may also remove or limit Freeport's right to take disputes to an international arbitration court, analysts say.

Indonesia's mining ministry recommended on Friday that Freeport be allowed to export 1.1 million tonnes of copper concentrates until Feb. 16, 2018.

But that is conditional on Freeport accepting the special mining permit, said spokesman Eric Kinneberg, repeating that the Phoenix, Arizona-based miner will only agree to a permit providing the same fiscal and legal protection in its current contract. (Reporting by Susan Taylor; Editing by Alistair Bell and Leslie Adler)