The last few months have been very interesting for my company. In July, our union workers staged a walkout that lasted a few weeks. The intention was to gain management's attention and it worked. For the next several weeks the two sides negotiated…unfortunately without resolution. The workers then went on strike in September.
The union initially demanded 300% increase in pay and they weren't budging. We offered 11% and weren't budging. There is a bit of a gap between those two numbers. To justify their demand, the union pointed to the wages we pay in South America, specifically in Peru and Chile, as examples. Their argument was our Papua mine is the most productive asset in our portfolio yet the local workers are paid a fraction of the workers at our other mines (approximately $600/month).
Taken by itself, it's a pretty compelling argument. There are, of course, two sides. The first is basic economics: Supply and Demand. We pay wages according to the local market. The average income in Indonesia is $130 per month. In Papua, where our mine is located, it's even less than that. Cost of living is also dramatically lower in Indonesia than in Peru or, especially, Chile, which is an industrialized nation. Indonesian workers earn less because the market demands less. The second argument against raising wages so much is the in-kind benefits: housing, medical insurance, meals, no-interest loans, free education for family. We don't offer most of this at other mine sites. Finally, and this, to me, was the selling point: number of workers. At our mine in Arizona with similar output to our mine in Indonesia we employee roughly 4,000 employees and contractors. At our Papua mine that number runs closer to 30,000. I joked to the negotiating team we should agree to their demands if they agreed to let us terminate 26,000 employees.
Ultimately, the two sides came together at a 40% increase in pay over two years. The agreement ended the three month strike which resulted in major losses. The Indonesian government alone lost $1 million per day in lost tax revenue. We counted our losses in the tens of millions and ended the year with a 60% reduction in production quarter to quarter. Brutal.
Simultaneous to the labor issue, our security issue has worsened. You may remember three years ago one of our expats was shot and killed on the road connecting our mine to the lowlands of Papua. Over the last three years, the shootings have continued unabated. During the work stoppage, the frequency and brutality increased. Some linked the two, but it is doubtful they were related.
The shootings began as long-range shots from high-powered rifles. As our security tightened, the attacks became more, not less, bold. The worst involved the top two members of our security department having their vehicle fired upon, then lit on fire, burning the two passengers alive. Recently, another vehicle was fired upon and flipped over. They burned one person alive inside, and pulled the other to the middle of the road and executed him while he kneeled on the ground in front of them. In a third incident, the driver of the vehicle managed to escape with nothing more than a few scrapes and bruises by running into the jungle and hiding several hours until our security swarmed the area. He had seen everything and could identify the perpetrators by sight. He stumbled out of the jungle and collapsed. They rushed him to the hospital for treatment and he was released a few hours later. Two days later this perfect eyewitness was found murdered.
I think everyone knows who is behind the shootings. Papua itself is a very secure area. The Indonesia government is very picky about who is allowed to visit Papua, as a rule barring foreign journalists. Further, our mine site is a protected asset and is swarming with police and military. The fact that we have any of these issues at all should provide hints as to the perpetrators. The problem is not just proving it, but convincing the Indonesian government to take action based on the proof.
In the meantime, we continue to make adjustments to our transportation and security protocols. For example, we transport workers up and down the hill every day for work. We used buses until they became easy targets on the slow, winding road and we had to change to helicopter. That worked for months until a helicopter was fired upon and struck, injuring two passengers and causing an emergency landing. We now are back to buses with heavily armed escorts in front and back. That just moved the shootings to new locations with easier targets.
The safety and security of our employees is incredibly important. When people hear a mining company claim the safety and security of its employees are the top priority, they often scoff. Part of it is because everyone knows profitability is the number one priority for any company. But the other part is mining companies have a bad reputation because the work we do is dangerous and, as an industry, injuries are common. It's far safer than crab fishing or firefighting, but it isn't office work, either. I, however, believe them. I'm involved in many of the efforts we are undertaking to improve the security, and I've personally heard our top executives commit to large expenditures, that will reduce profit, so we can keep our employees safe.
While we wait for these efforts to take effect, all we can do is support the bravery of the men and women who continue to work in the face of this adversity. Like police officers and military personnel, they are performing a job I would not be willing to do myself. For that, they have my thanks and praise.
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