UPDATE 2-Freeport Indonesia to restart underground mining, sees 20 pct output hit
* To take a month for underground mining to hit full capacity
* Freeport says has not yet lifted force majeure
* Company in talks to renegotiate mining contract
JAKARTA, July 9 (Reuters) - Freeport McMoRan Copper and Gold Inc has received Indonesian government permission to resume underground operations at its Grasberg mine, but expects output this year to drop by a fifth following a near two-month stoppage.
A tunnel cave-in killed 28 people at the world's second-biggest copper mine in May, shutting operations while safety investigations were carried out.
The government, which gave the go-ahead for open pit mining to resume last month, said on Tuesday that its decision to allow underground mining to restart followed the completion of an independent investigation into the accident.
"From everything that has been done, that has been taken into consideration, including pressure from the community and local government, (we) have decided OK, it's safe," Deputy Energy and Mineral Resources Minister Susilo Siswoutomo told a joint news conference with Freeport.
The deputy minister said that to improve safety in future detectors had to be installed to monitor rock conditions, stronger tunnel supports needed to be installed and increased maintenance of training areas was needed in the mine.
Freeport Indonesia President Director Rozik Soetjipto said it would take one month for underground mining operations at the mine to return to full capacity.
Soetjipto forecast the mine would only produce 80 percent of its targeted output of copper, gold and silver concentrate this year.
Before the accident, Freeport had expected sales of about 500,000 tonnes of copper from its Indonesia unit in 2013, along with 1.25 million ounces of gold.
The Grasberg mine ships around 35 percent of its production for further processing in Indonesia, while the remainder goes to Japan, Korea, China and Spain, according to the deputy minister.
Freeport was forced to declare force majeure on copper shipments after the accident.
This had yet to be lifted, Soetjipto said, adding that Freeport would prioritise meeting its supply commitments for its Gresik smelter in Indonesia.
"We have not started (concentrate) shipments yet," Freeport spokeswoman Daisy Primayanti said via a text message.
Open-pit mining has been running at full capacity since July 4. The Grasberg operation was currently producing around 160,000-170,000 tonnes of copper ore a day compared to 220,000 tonnes before the accident, Soetjipto said. He blamed the drop on the lack of production from the underground mine.
The open-pit mine normally produces between 140,000 tonnes and 150,000 tonnes of ore per day, while output from the underground operations is 80,000 tonnes.
Freeport is in talks with the government to renegotiate a new mining contract to replace its current 30-year contract, which expires in 2021.
A member of the government team negotiating with Freeport said last week the accident should not delay those talks.
Benchmark three-month copper on the London Metal Exchange traded at $6,847 a tonne on Tuesday, or $568 lower than the day before the accident.