A clash between striking workers and police near Freeport McMoRan's Indonesian copper mine killed one protestor and injured others, complicating a pay dispute that appears far from being resolved.

The demonstration by the miners, over access to their barracks, was the biggest clash at Freeport Indonesia in four year and raised tensions at the company's Grasberg copper mine, the world's second biggest, where production has been disrupted since workers went on strike in mid-September.

Last week, the workers said they would extend their stoppage to mid-November as negotiations between the company and their union over better pay and conditions remained stalled, raising the prospect of more output reductions.

Last month, Freeport said it would be unable to meet its third-quarter sales estimates because of the strike at Grasberg. The company also estimated each day of stoppage to impact the production of about 3 million pounds of copper and 5,000 ounces of gold.

Copper prices have so far shrugged off the dispute, weighed down by fears about a drop in metal demand if the global economy weakens, but prices could rise if the strike lingers.

The news of the conflict at Grasberg is a timely reminder that supply considerations remain a major source of upside price risk, said Citigroup analyst David Thurtell.

If the financial market backdrop settles down, then people will return to the strong fundamentals for copper, he said.

Three-month copper on the London Metal Exchange edged up 0.1 percent to $7,375 a tonne by 0909 GMT, from an early low of $7,274.25.

Disgruntled Grasberg workers protested after being barred from collecting belongings from barracks at Gorong Gorong, where buses take workers to the remote mountain mine.

Police fired warning shots, and one worker later died in hospital from a gunshot wound to the chest, said union official Virgo Solossa. Local police chief Denny Siregar said eight workers were injured, while seven policemen were wounded by miners throwing stones.

POLICE REINFORCEMENTS

Mine workers burned four trailers after their colleague was killed, according to local television footage seen by Reuters.

The situation has now cooled down, said Siregar, adding he had now assigned 500-600 police to deal with thousands of workers involved in the demonstration.

Siregar said police had allowed some of the workers to camp outside Gorong Gorong to try and calm the situation.

The gap between worker demands and Freeport over pay still looks wide and talks are currently stalled.

The union has lowered its pay rise demand to between $12.50 and $37 an hour from a initial $17.5 to $43 an hour, but has rejected a 25 percent pay increase offer from a current rate of $1.5 to $3 an hour.

The strike, which has so far been peaceful, has slashed output, processing and ore shipments from Grasberg.

The mine is in Indonesia's easternmost Papua region, where a simmering separatist movement has led to occasional attacks on mine workers and police in recent years.

Freeport, which has used some contractors to work at Grasberg during the strike, said last week it had scaled up mining and milling output and concentrate sales, but declined to comment further on production on Monday.

We are continuing to work with the local police to deal with these acts of intimidation so that our workers located in Timika can exercise their rights to return to work if they so desire, said spokesman Ramdani Sirait.

An eight-day strike at Grasberg in July led the company to suffer a production loss of 35 million lb (15,876 tonnes) of copper and 60,000 ounces of gold.

The current two-month strike by unionised workers, about half of Freeport's 23,000 Indonesian workers, is the longest stoppage in Indonesia's mining industry.

Miners in other developing nations have walked off the job this year to demand better pay as corporate profits surged.

Freeport, the world's largest publicly traded copper miner, is also facing a strike at its Corro Verde mine in Peru. Union leaders last week failed to agree on a wage deal that would settle the strike.

Citigroup London Gold Citigroup