* Protests over supposed pollution from Cerro Matoso
* Mining minister calls on protestors to end blockades
* BHP Billiton-owned mine shut until can operate normally
By Luis Jaime Acosta and Peter Murphy
BOGOTA, Oct 9 (Reuters) - Cerro Matoso, the world's No. 2 ferronickel producer owned by multinational BHP Billiton and located in Colombia, said it has temporarily shut its mine after two weeks of protests by indigenous groups, halting 4 percent of world output.
The impact of the stoppage on the nickel market is likely to be subdued amid a global surplus of nickel that has caused prices to tumble about a quarter in the last year but adds to near-constant disruption in Colombia's mining sector this year.
The London-traded nickel contract ended 1.7 percent lower at $13,660 per tonne on Wednesday.
Cerro Matoso took the decision to close its mine for workers' safety, it said in a statement, adding that protesters were demanding "monetary indemnification". It did not say why, merely that the dispute could only be resolved in the courts.
"This implies that from now there will be no ferronickel production or associated activities ... until conditions enable the company to operate normally," it said.
A mining ministry source said the protesters were demanding compensation for alleged harm to their health from pollution caused by the open-pit project which the source said generates about $185,000 a day for the government in royalties.
Mining minister Amylkar Acosta has called on protestors to stop blockades at the site, a ministry statement said.
An executive at Russia's Norilsk Nickel told Reuters on Monday he expected it would take about two years for global nickel prices to rise significantly, with about a third of global output now produced without profit.
Cerro Matoso in northern Colombia is the world's second biggest ferronickel producer combining a lateritic nickel ore deposit with a low cost ferronickel smelter. The smelter produces high-purity, low-carbon ferronickel granules.
Colombia's ferronickel production surpassed 47,000 tonnes in 2012, according to National Mining Agency data.
The company said steps it was taking to prevent damage to its electric furnaces were not sustainable for long and would eventually result in irreversible damage if operations are disrupted for long enough.
Colombia's mining sector has had a turbulent year especially in the extraction of coal with strikes at its top two coal producers, joint-venture Cerrejon in which BHP Billiton has a stake, and U.S.-owned Drummond as well as logistics disruption.
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