(Recasts with company saying operations unaffected, updates copper prices) TIMIKA, Indonesia, April 18 (Reuters) - Thousands of protesting Papuan workers walked off the job at the vast Grasberg copper and gold mine on Wednesday, saying their action had halted mining operations there. But the mine's American owner, Freeport-McMoRan Copper & Gold Inc. <FCX.N>, denied the claim and said production and shipping activities were not affected by the protests. "There's no more ore coming out from Grasberg mine because of the strike," Irianto Inury, a senior official at Tongoi Papua, a workers group representing native Papuans, said by telephone. "The waters around the mill plant are also clear, indicating that the milling activities have also come to a halt," he added. Freeport said in a statement e-mailed to Reuters on Wednesday that output at one of the world's largest copper and gold mines was not hit: "Our operations continue, including production of (copper) concentrate and metal and concentrate shipping." It declined further comment. Armored vehicles and riot police stood guard at the Freeport offices in Timika in the growing dispute that has helped push world copper prices to seven-month highs. Copper <MCU3> for three-month delivery on the London Metal Exchange rose to $8,070/8,080 per tonne, from $8,050 at Tuesday's close. But the metal eased later to trade down at $7,980. In New York, copper for May delivery <HGK7> fell 2.50 cents to $3.6520 per pound in morning trading on Wednesday. Analysts and traders said the market's focus was on the supply side and threats to production, with the latest being at Grasberg. Workers taking part in Wednesday's rally to demand more recognition for native Papuans sang and unfurled banners saying "If not now, then when?" and "Employees demand justice" as they gathered at the parliament in the town of Timika for the three-day rally. CONTROVERSY The mine has been a frequent source of controversy over its environmental impact, the share of revenue going to Papuans and the legality of payments to Indonesian security forces who help guard the site. The Papuan workers are demanding fair career opportunities for native workers, improved recruiting and better pensions. The protest coincides with talks over a new two-year collective labour agreement for Grasberg. Workers marched to parliament from Freeport's office in Timika, calling on the chairman of the U.S. firm James Moffett, and president director of Freeport Indonesia, Armando Mahler, to come to the town to resolve the dispute. Tongoi representatives and the firm held talks in the parliament in Timika, which is about a two-hour drive from the mine. Deputy Police Chief Alfred in Timika put the number of demonstrators outside parliament at at least 5,000, The deputy chairman of the regional parliament, Stefanus Rahangiar, said the talks would resume on Thursday at 10 a.m. (0100 GMT; 9 p.m. EDT Wednesday) at Freeport's office in Timika. He said Mahler and Moffet would join via teleconference. Indonesia's energy and mining minister sounded a warning over the protest: "If it drags on, it could disrupt production," Purnomo Yusgiantoro told reporters at an energy seminar in Jakarta, urging talks. As well as the recognition demands, the group said it also demands that the president of Freeport Indonesia be replaced and the firm's headquarters be moved from Jakarta to Papua. "If the demands are not responded to via a written statement between the company and the workers, we will continue our actions from Grasberg to the port site," Frans Pigome, chairman of Tongoi Papua, said in a statement. Pigome earlier told Reuters the rally included both Papuan and non-Papuan workers and would go on for three days. Last August, workers at the world's largest copper mine, Chile's Escondida, staged a 25-day protest that ended in a 5 percent wage rise and a bonus equal to $17,000 for workers. Escondida is owned by the world's two biggest international miners, BHP Billiton <BHP.AX> <BLT.L> and Rio Tinto Plc <RIO.AX>. In Timika, the situation in the town remained calm and workers taking part in the rally bedded down for the night in a square near the Freeport office. Freeport is Indonesia's largest taxpayer. Grasberg produced 544,000 tonnes of copper in 2006 and has the capacity to produce up to 860,000 tonnes of copper, according to the Reuters Metal Production Database (http:/mpd.session.rservices.com). ($1=7.733 yuan)
