Is this the end for this Intrepid miner?

Operating in foreign countries has its risks

Intrepid Mines Limited (ASX: IAU) shares have crashed by 50% this morning, after its Indonesian partner on the Tijuj Bukit gold and copper project, PT Indo Multi Niaga, suspended operations without consulting the company first.

PT Indo Multi Niaga also requested several members of senior management, including all expatriate employees seconded from Intrepid, to leave the site immediately.

Intrepid is attempting to establish discussions with both new and original shareholders of PT Indo Multi Niaga, regarding arrangements to allow the resumption of drilling activity at the earliest opportunity. No reason has been given for the moves by PT Indo Multi Niaga, but the Australian Financial Review reports that souring relations were to blame.

Intrepid stated that it is in compliance with and always has been in compliance with all of its obligations under the joint venture agreements in place and applicable law. Intrepid has also financed all of the project expenditure to date, being US$95m, including financing the original shareholders of PT Indo Multi Niaga to allow them to meet their 20% obligation commitments in excess of the initial amount of A$50 million.

This situation illustrates one of the risks faced by companies operating joint ventures and projects in foreign countries. Due to foreign ownership laws, 20% of the Tujuh Bukit project and the title on the tenement, is held by a young Indonesian couple, which means Intrepid’s name is not on the title of its main asset. Newcrest Mining Limited (ASX: NCM) has a similar arrangement for its Gosowong project in Indonesia.

Indonesia changed its project ownership rules in April 2012, requiring at least 51% of any project to be locally owned by the 10th year of production, which has implications for both Intrepid and Newcrest.

Investors will be hoping Intrepid doesn’t share its fate with the likes of Kagara Ltd (ASX: KZL) and Mirabela Nickel Limited (ASX: MBN). Kagara was forced to call in administrators and Mirabela Nickel was forced to raise $120m in equity.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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