VANCOUVER — Toronto-listed explorer Intrepid Mines (IAU-T, IAU-A) is the latest victim in an ongoing nationalization saga in the South Pacific. On June 28 an unknown entity seized control of its Indonesian joint-venture partner, Indo Multi Niaga (IMN), and subsequently shut-down exploration efforts at the company’s Tujuh Bukit copper-gold project — on the island of Java — three weeks later.
Intrepid first acquired an interest in Tujuh Bukit in late 2007 when the company merged with Australian gold-miner Emperor Mines. The initial alliance agreement was signed in April 2008 between INM and Emperor with a portability clause that outlined the eventual merger into Intrepid.
Foreign ownership of mining tenements was not allowed in Indonesia until 2009 so Intrepid does not actually own any of Tujuh Bukit's mineral concessions, but instead holds an 80% economic interest in the project via a series of contractual arrangements with INM.
Intrepid has been in negotiations with its Indonesian partner to restructure its joint-venture agreement in order to convert IMN into a foreign capital investment company. The companies had reached a preliminary agreement in June 2011 involving the commercial terms upon which share issuance and conversion would be dictated — where Intrepid would eventually acquire an 80% direct-equity stake in IMN — though Intrepid reported in late April that negotiations had become “slow and protracted.”
The situation was further complicated on June 28, when Intrepid announced that new shareholders had not only “joined the register of PT IMN”, but acquired a full 80% interest in the Indonesian mining company. Intrepid indicated it would reach out to the new parties, but no information was released on the identity of the shareholders or how new ownership of INM might impact ongoing negotiations.
On July 20, the new controlling interests in IMN — which remain anonymous — blindsided Intrepid by shutting down exploration efforts at Tujuh Bukit. The Indonesian company booted several members of Intrepid’s senior management team off the site, and locked down operations. The timing could not be worse for Intrepid, which has eight diamond drill rigs running, spent US$11 million on exploration expenditures during the first quarter, and was in the process of a resource definition program.
Though Indonesia recently introduced updated mining legislation that calls for 51% domestic ownership in foreign mining operations by the tenth year of production, the policy revision should not have impacted exploration outfits like Intrepid until later in the company’s life.
What is taking place at Tujuh Bukit is a question of contract law and the outstanding agreements Intrepid maintains with IMN.
The original alliance agreement dated April 2008 was signed by IMN president and director Maya Miranda Ambarsai and director of operations Andreas Reza Nazaruddin. Ambarsai is listed as an “entrepeneur of gold, tin and coal” and carries a Masters of International Business from the Swinburne University of Technology in Melbourne, Australia. There is limited public information available regarding Nazaruddin, but his name appears on numerous Indonesian press statements from the company and he remains listed as IMN's “principal” on the Indonesian Mining Association website.
Intrepid reports it is in compliance with all of its obligations under the joint-venture agreement, and the company is attempting to kick-start discussions with both the new and original IMN shareholders, though to date the identity and intentions of the new interests remain unclear.
“It makes no sense,” Intrepid spokesman Greg Taylor told reporters from Stockhouse. “Effectively we have an Indonesian partner who has a 20% interest in the project, and approximately a month ago we announced, that we had found, that they had sold 80% of their 20% ownership in the project to another Indonesian entity.”
According to company reports, Intrepid has spent US$95 million on the project to date — conditions indicate required expenditures of US$52 million — and was on track to bring the project to feasibility as stipulated in its agreement with IMN.
Based on the original consultancy agreement between Intrepid and IMN, the Indonesian company may already be in a breach of contract. In accordance with section 4.3(f) of the consultancy conditions IMN is obligated to “allow [Intrepid] employees access to office facilities at IMN's premises and Tujuh Bukit KP.”
Section 15.3 of the contract supplies conditions for potential arbitration between the joint-venture partners. Failing an amicable settlement, the dispute will be “referred to arbitration in English under rules of Singapore International Arbitration Centre.” An arbitration decision would be final and binding on both parties, and would be conducted under Singaporean laws.
There is certainly a lot at stake for Intrepid. The company holds an oxide gold-silver resource totalling 130 million inferred tonnes at 0.6 grams gold per tonne and 18 grams silver per tonne for 2.4 million oz. contained gold and 80 million oz. contained silver.
Intrepid completed a preliminary economic assessment on the oxide deposit in 2011 that modelled a US$204 million operation with a US$446 million after-tax net present value and 54% internal rate of return at a 10% discount rate and US$1,450 per oz. gold price.
In addition, the company is planning 54,000 metres worth of drilling on a series of copper-gold porphyries — its Tumpangpitu porphyry holds 1.7 billion inferred tonnes at 0.5 grams gold and 0.4% copper for 15 billion lbs. contained copper and 25 million oz. contained gold.
Swirling uncertainty has taken a toll on Intrepid’s share price. The company has dropped 71% or 95¢ in value since Indonesia's new nationalization laws were announced at the beginning of March. News of IMN's suspension of activities predictably depressed share valuations further, as Intrepid dropped 36% or 22¢ following the announcement, nearing 52-week lows at 39¢ per share.
Intrepid remains in an enviable liquidity position having reported US$139 million in cash and term deposits at the end of the first quarter. The company has 524 million shares outstanding for a $212 million presstime market capitalization.