Australia's Intrepid faces tough fight over Indonesia mine

MELBOURNE/JAKARTA, June 19 Wed Jun 19, 2013 11:07am BST

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MELBOURNE/JAKARTA, June 19 (Reuters) - Australia's Intrepid Mines Ltd is learning that business in Indonesia is personal as it wages a difficult fight to win back rights to a $5 billion copper and gold prospect in East Java.

Intrepid was booted off the site last year by its Indonesian partner who transferred the Tujuh Bukit mining leases into a new company, a move the Indonesians say was legitimate. Intrepid argues the action violated transfer laws.

The Australian company splashed out $95 million, nearly double what it had originally agreed to spend, to prove up the find over nearly five years.

Since losing the rights to drill on the Tujuh Bukit site just over a year ago, the company's value has crashed to A$140 million ($132.53 million), down from more than A$1 billion in 2011.

Intrepid's big mistake was that it never had the presence on the ground essential to protecting its interests, say analysts, while it spent aggressively to prove up the huge scale of Tujuh Bukit without having finalised agreements to secure a direct stake in the project.

"Business is very personal. It's the reputation you have, it's the relationships you have that allow you to enforce a contract. If you go to court or arbitration, no matter the outcome, you've actually lost the deal," says Colin Brown, an adjunct professor at the Griffith Asia Institute.

From 2008, everyone involved - Intrepid, its Indonesian partners Maya Ambarsari and Reza Nazaruddin, and their Australian partner, wealthy businessman Paul Willis - realised the project was so huge that bigger miners were going to be needed to develop it.

"All we saw was this massive copper-gold resource. Everybody was just blinded by it, including the investors," Willis told Reuters.

Rather than sticking together, the partners went off in different directions to try to attract large investors into a project that may hold 19 billion pounds of copper and 30 million ounces of gold.

In 2008, Intrepid bought Willis out of the project for $2 million after he tried to bring in a major Indonesian company without first getting the consent of his partners.

But Intrepid was left stranded a year ago when its Indonesian partners Maya and Reza transferred the Tujuh Bukit exploration licenses into a new company and sold most of it to powerful businessman Edwin Soeryadjaya.

At a shareholders' meeting in Brisbane on Thursday, Intrepid hopes to overcome at least one challenge by defeating a push by a new 5.4 percent shareholder, Hong Kong-based Quantum Pacific, to oust the board and carve out a deal with Soeryadjaya.

Even if it clears that hurdle, Indonesian experts believe Intrepid will be lucky to break even on the $100 million it has already spent on the project through a compensation deal with the new owners.

UPHILL BATTLE

If the board survives Quantum Pacific's attempted coup, it could negotiate with Soeryadjaya, the chairman of coal miner Adaro Energy and founder of a private equity firm Sarataga Investama, who has so far kept a low profile through the controversy.

Soeryadjaya has said in a letter to Quantum Pacific that he would be willing to negotiate with the fund and was not happy with Intrepid's attempt to use the courts.

Intrepid CEO Brad Gordon has said he would be willing to negotiate with Soeryadjaya, and is keeping an option of taking Maya and Reza to international arbitration as a last resort.

Intrepid has also launched a case against the local regent of Banyuwangi for allowing the exploration permits to be transferred to a new company.

"The courts rarely give victory to foreign companies," says Griffith Asia Institute's Brown.

A lawyer for Maya and Reza, Hendry Muliana Hendrawan, said the transfer of the Tujuh Bukit licenses was allowed under government regulations, a position backed by the Banyuwangi Administration's mining permit division chief Abdul Kadir.

Intrepid is also defending a case brought by Willis, who argues he was bought out of the project under duress.