Question

Intrepid's misadventures in Indonesia Unfortunately, it is a familiar chain of events in the mining industryJunior mining partner makes a discovery in a faraway land Junior mining company sinks significant amounts of capital into the ground to establish a world-class resource. The discovery attracts the interest of powerful local business concerns and/or governments. The deposit is seized under suspicious circumstances and the junior mining company's shareholders are annihilated. This story has played out all over the world in the last five years, from Venezuela to Mongolia to the Democratic Republic of Congo Such is the case for Intrepid Mines Ltd, an Australian-listed company, which owned substantial rights to the Tujuh Bukit mine, a gold and copper project in Indonesia. Intrepid's misadventures in Indonesia began in 2007, when it signed an agreement with a local company called PT Indo Multi Niaga (MN), which owned rights to the Tujuh Bukit copper-gold project. The deal allowed Intrepid to earn up to 70% of the project's potential earnings by spending A$8 million on exploration and up to A$2 million on a feasibility study for what was then considered to be a relatively small deposit Everything changed in July 2008 as Intrepid's drilling revealed a substantial reserve of high-grade copper and gold. Further drilling established that the mine holds 19 billion pounds of copper and 28 million ounces of gold, making it one of the largest discoveries of its kind in decades The problems started in 2011 when Intrepid was having trouble negotiating a new shareholder agreement with PT IMN, which was required following changes in Indonesian law. Intrepid's joint venture partner began delaying the deal although Intrepid continued working on the site. The relationship deteriorated in the following months and Intrepid became suspicious. It then discovered that 80% of IMN's shares and leases were transferred to two companies linked to a high profile Indonesian billionaire named Edwin Soeryadjaya. Then in July 2012, two truckloads of armed police showed up at the Bukit Tujuh mine and ordered all Intrepid's expatriate employees to leave the site. The deception of Intrepid's joint venture partner soon became clear. By that time Intrepid's total investment in the project was around A$100 million with almost nothing to show for it. Upon the news, Intrepid's shares plunged 55 per cent, destroying about A$160 million in market value. Intrepid launched several complaints with the Indonesian police, and the company engaged law firms to fight civil and criminal cases against IMN. Intrepid has also launched a case against the local government of Banyuwangi for allowing the transfer of Tujuh Bukit leases to another company While these cases were waiting to be resolved, a strange new twist emerged. In February 2013, a Hong Kong-based Hedge Fund called Quantum Pacific Capital began calling investors in Intrepid and trying to gather support for a proposal to overthrow Intrepid's Board of Directors. Quantum Pacific claimed that it led the push to take over the Intrepid Board in order to pursue a plan to negotiate with Mr Soeryadjaya to win back a stake in Tujuh Bukit However, Intrepid publicly claimed that Quantum Pacific was working hand-in-hand with Me Soeryadjaya to wrest control of the mine and the company. In a vote of Intrepid shareholders held in June 2013, the majority of the shareholders rejected Quantum Pacific's motion and supported the current Board and its battle to win back rights to the Tujuh Bukit mine. In the weeks leading up to the shareholders' poll, more than 20 percent of the company's shares were bought by people from Indonesia, Singapore and Hong Kong "In our opinion, the Board's legal strategy reflects an inexperienced and highly naive view of conducting business in Indonesia and puts any chance of project recovery at significant and unnecessary risk," Quantum Pacific said in a statement. "All precedent cases have favoured the Indonesian party," it said after the vote.

Answer 1

1. Intrepid Mines face the below mentioned risks in Indonesia :

a) Political Risk : The government of Indonesia was not supportive towards Intrepid mines and supported the local people only.

b) Ethical Risk : Intrepid Mines also faced the ethical risks as the actions taken by PT IMN were completely unethical when it sold its 80% shares to a local billionaire without the knowledge of Intrepid Mines.

2. Intrepid could have avoided such risks by drafting a proper legal document with all the conditions mentioned in the same beforehand. Any discrepancy in the behavior and actions of the partner apart from the actions mentioned.should be penalised.

3. a) Australian firm should develop a proper legal document with all the terms and conditions mentioned in the same.

b) The partners should not be trusted blindly.

c) There should be a proper partnership deed in terms of ownership of the shares signed between the partners.