Intrepid's Tujuh Bukit deal with Indonesian tycoon recalls the Bre-X - Busang disaster

In his article, Intrepid Mines recruits a white knight in Indonesia, The Australian’s Peter Alford reports on Indonesian media proprietor Surya Paloh’s terms for assisting the development of dual Australian/Canadian-listed junior, Intrepid Mines, into a “significant resources house in Indonesia”. The company has reportedly agreed to "potentially handed over 13% of itself to [the] Indonesian media tycoon for a price of $1,000."

Intrepid's CEO, Brad Gordon argues that the deal with is "about a longer term strategic alliance" not just getting Intrepid’s hands on 80% of local Indonesian company PT Indo Multi Niaga and its Tujuh Bukit IUP exploration permits in East Java province.

An interesting scenario will surely unfold if Edwin Soeryadjaya, chairman of Adaro Energy and founding partner of Saratogo Capital, is now involved in PT IMN as rumoured.

How much political clout can Surya can deliver? Did he burn his bridges with the country’s largest political party, Golkar, of which he was once Advisory Council chairman, when he set up the rival National Democrat mass organization, which spawned the Partai Nasional Demokrat? Is his new opposition political formation also viewed as a threat by president Susilo Bambang Yudhoyono’s own Partai Demokrat in the run-up to the 2014 election?

Moreover, what will be the impact of Indonesian big guns getting involved in commercial disputes between foreign juniors and local partners over speculative ground?

The last similar ‘celebrated’ incidence also occurred at the top of a market, with Indonesia highly favoured as an investment destination.

It involved a Canadian junior undertaking exploration with KP-holding local companies and announcing excellent results without having the permits converted to a Contact of Work to back its investment.

In the resulting shindig, one of the local partners, the late Jusuf Merukh, took legal action against the junior, Bre-X, and two foreign majors also got involved. One of the latter, Barrick, tied up support from the sons of the coordinating minister for economy and the mines minister and eventually Siti Hardyanti Rukmana, elder daughter of then president, Soeharto, while Bre-X brought in the president’s eldest son, Sigit Harjojudanto.

Of course, underlying the Busang dispute was a monumental resource scam, permitted because of lax Canadian security rules, and all ended in tears for investors.

The impact of senior Indonesians involved in public brawling over an exploration play, the country’s obvious lack of transparency and business’s reliance on informal, back-room deal-making, is reckoned to have doubled the negative impact of the following Asian financial crisis on Indonesia.

Tujuh Bukit is not Busang and Indonesia has moved along considerably. To some degree, the ramping up of the commercial dispute between Intrepid and PT IMN is masking a more serious issue.

Mining and foreign investment regulations aren’t the real risk to the project - regardless to who owns it. It is forestry.