Kendall Court ends Intrepid’s Indonesia mining nightmare

Kendall Court Resource Investments has acquired a convertible bond and option into Merdeka Serasi Jaya (MSJ) - the holding company for the Tujuh Bukit project - that would give it a 22.5% stake in the business if fully converted. MSJ is looking to raise up to $75 million through an IPO in Jakarta in the third quarter of 2014.

Intrepid said it was awarded the securities after Provident Capital and Saratoga Capital brokered an agreement between all parties involved in the dispute. A deed of settlement has been signed that will bring to an end to arbitration proceedings in Singapore and a court case in Indonesia.

The settlement involves Indo Multi Niaga (IMN), one of Intrepid's former Indonesian partners, issuing a $70 million promissory note to Intrepid subsidiary Emperor Mines for a bond that converts into a 15% stake in MSJ. The bond can be exercised once MSJ goes public. In addition, Emperor has the right to acquire a further 7.5% stake in MSJ for $37.5 million at the time of the proposed IPO.

Intrepid has signed over these rights to Kendall Court for $40 million in cash plus a standby letter of credit also worth $40 million.

Intrepid entered into an agreement with its partners, Indonesian couple Maya Ambarsari and Reza Nazaruddin in 2007, when mining and exploration licenses could only be held by locals. The licenses for the Tujuh Bukit Project were held by IMN on the understanding that 80% of the shares would be issued to Intrepid with the local partner holding the balance.

Two years later the law changed and foreigners were allowed to hold mining licenses, which led to nominee structures being unwound and overseas players becoming direct shareholders in projects. Intrepid stopped paying IMN's salaries in 2011 following difficulty negotiating a new shareholder agreement with management, but continued to fund work at the site, spending $105 million in total.

In July 2012, the licenses were transferred to a new majority stakeholder in IMN - a company called Bumi Sukses Indo (BSI). The entity is controlled by Indonesian billionaire Edwin Soeryadjaya, co-founder of Adaro Energy, the second largest coal producer in Indonesia, and also co-founder of Saratoga Capital.

Intrepid discovered the transfer that December via Australian media reports. It filed complaints with the Indonesian police alleging fraud and embezzlement by the original shareholders of IMN and associated parties.

Intrepid shareholder Quantum Pacific, a Hong Kong private equity firm, pushed for the removal of five out of seven board members, citing dissatisfaction with the board's strategy for resolving the issue. However, Intrepid's shareholders came out in support of the board.

"In addition to the protracted dispute over ownership rights in the project which we have now resolved, the value of our interest in the project has declined as a consequence of lower metal prices and regulatory changes which have decreased both our ultimate potential ownership and the overall returns available to the project," Ian McMaster, Intrepid's chairman, said in a statement.

"Legal challenges are time consuming, costly and rarely result in harmonious relationships going forward."

Tujuh Bukit comprises two principal assets: an oxide gold-silver resource with in excess of 2 million ounces of gold and 70 million ounces of silver; and a copper-gold resource boasting 19 billion pounds of copper, 28 million ounces of gold and 400 million pounds of molybdenum. The in situ metal value of the second asset is said to be $100 billion.

"This is one of the best undeveloped copper assets in the world and its sponsors are extremely capable. We are confident of its prospects going forward," said Chris Chia, managing partner at Kendall Court.

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• Topics
• Regulation
• Mezzanine
• Restructuring
• Industrials
• Southeast Asia
• Commodities
• Indonesia
• Saratoga Capital Group
• Kendall Court Capital Partners
• Southeast Asia
• regulation
• IPO
• Mezzanine