ANY shareholders in Intrepid Mines who happen to catch the latest television advertisements promoting the virtues of Indonesia as a business destination may find themselves having a good laugh. Or a good cry.
The ads, which have been screening on business news networks throughout Asia, are full of beautiful faces and lavish cinematic shots of the country’s bustling cities and natural wonders. They clearly aim to paint a picture of Indonesia as a thriving, modern, and safe place to invest.
“Economically strong, politically stable, reform minded, an emerging global powerhouse in Asia. Remarkable Indonesia – take a look at us now,” the voiceover says.
Investors in Intrepid have certainly been taking a look at Indonesia, but they’re unlikely to enjoy what they see.
The company’s struggles in recent weeks are instead likely to inspire anger, indulge their sense of injustice, and invoke a very strong desire never to invest in Indonesia again.
It is a situation also affecting the Perth-based resources companies that have been exploring in Indonesia, and which now find themselves promoting to an investment community that is increasingly cautious towards the country.
Intrepid, which has poured almost $100 million into exploration at what is shaping up as a world-class Tujuh Bukit copper-gold discovery on the island of Java, was abruptly kicked off the project late last month. Its local joint venture partner had changed hands, and the new management team appeared to have taken a dim view of Intrepid.
It has left Intrepid in limbo, and at the time of writing the company was betting on a plan to enlist a local Indonesian businessman to work towards a resolution with the estranged local partners.
The situation has been devastating for Intrepid’s shareholders: From a high of $1.63 a year ago, and 55 cents immediately before the company was kicked out of Tujuh Bukit, the stock fell as low as 22 cents.
The Intrepid experience summarises the best and worst aspects of working in Indonesia.
The country obviously has incredible geological potential, as the size of the Tujuh Bukit discovery shows, but its dramatic falling out with its partner feeds perceptions that Indonesia carries a high degree of sovereign risk.
London-listed Churchill Mining, led by Perth-based executive chairman David Quinlivan, is now in a $US1.8 billion court battle over the revocation of Churchill’s coal projects in East Kalimantan, a stoush that is doing nothing for Indonesia’s reputation.
On top of that, the latest investment laws proposed by Indonesia aren’t likely to improve the picture.
The laws, first drafted back in 2009, aimed to install a framework that would open the country’s resources sector to foreign investment.
The rules originally required foreign entities to have a 20 per cent interest in the project in local hands within five years of production. But the rule was recently toughened to require a 51 per cent project interest to be under local control within 10 years of first production.
Given weakening market conditions are making investors increasingly less tolerant for risk, the confluence of negative events in Indonesia appears to be particularly poorly timed.
Perth-based mining executive James Hamilton, who has previously had business dealings in Indonesia, said despite the country’s incredible resource potential he could not envisage working there again.
“Geologically, Indonesia I think is still one of the greatest destinations in the world. It’s got all the metals and minerals ... in great abundance. And the country is massively underexplored,” Mr Hamilton told WA Business News.
“That being said, you’ve got to operate in the Indonesian way, and the only way that’s at all possible is to have very well positioned joint venture partners.”
Of course, a number of companies have had positive experiences in Indonesia.
Perth-based gold miner Kingsrose Mining has been a real success story, growing into a $320 million miner on the back of its high-grade Way Linggo mine in Indonesia.
The company recently declared a maiden dividend, having found itself swimming in cash.
The Way Linggo mine only produces around 40,000 ounces of gold a year, but its incredibly low operating costs means it makes more in profit than Australian gold mines several times that size.
Coal explorer Realm Resources is another company pursuing an Indonesian opportunity.
Instead of building a costly railway line upfront, Realm hopes to barge coal from its Katingan Ria deposit in Kalimantan to the coast. That will deliver huge upfront cost savings.
Realm director Andrew Purcell told WA Business News the ongoing dramas around Intrepid and Churchill had hurt sentiment towards Indonesia-focused stocks, but he said it was possible to work successfully in the country.
Careful due diligence around titles and a strong local partner were the keys to succeeding in Indonesia, he said.
“If you’ve got those two things, it’s a country with a lot of opportunity,” Mr Purcell said.
