UPDATE 1-Huge Indonesian copper project sets sights on IPO

Mon Feb 24, 2014 6:09pm EST

(Adds IPO planned in Jakarta)

By Sonali Paul and Michael Taylor

MELBOURNE/JAKARTA Feb 25 (Reuters) - A $4 billion copper and gold project in Indonesia, snatched from an Australian company two years ago, is set to come back to the market this year in a public offering by its new owners, led by two local coal tycoons.

The owners of Tujuh Bukit plan an initial public offering in Jakarta in the third quarter of 2014, looking to raise up to $75 million and aiming for a market capitalisation of at least $800 million on listing, a controlling stakeholder said.

Work will initially focus on a zone that according to a 2012 report may hold at least 1.6 million ounces of gold and 60 million ounces of silver, generating cash before attention turns to what has long been recognised as one of the world's largest undeveloped copper lodes.

"Basically it's a very profitable project in its own right and allows us to generate cash flows and start to entrench ourselves in the area," said Gavin Caudle, a partner in Southeast Asia-focused Provident Capital Partners, a major shareholder in the Tujuh Bukit holding company.

The plan is to start building the mine later this year, with first gold production expected in 2016, ahead of the copper project, where construction would begin only in 2019, he said.

"The copper project's still got a fair way to go ... It's a massive project. The capex is in the billions," Caudle told Reuters by telephone from Singapore.

At one time eyed by Brazil's Vale, the mine in East Java was once seen as a company maker for Australian firm Intrepid Mines, which spent $100 million proving up a world-scale project that may hold 19 billion pounds of copper, nearly 29 million ounces of gold and 13 million ounces of silver.

But Intrepid was kicked off the site in 2012 by its partner, who transferred the mining leases into a new company and brought billionaire Edwin Soeryadjaya and other investors into the project.

Intrepid went to court and arbitration to reclaim its rights to 80 percent of the project, but finally gave up and reached a settlement last week with Soeryadjaya and his partners.

Under the deal, Intrepid received 22 percent in a new holding company, PT Merdeka Serasi Jaya, which it onsold to Singapore-based fund Kendall Court for $80 million, a "good outcome" compared with protracted litigation, new managing director Scott Lowe told Reuters.

For Intrepid, it offered a clean exit from a two-year nightmare, which saw its market value crumble from A$1 billion to A$140 million.

For the new owners it offered a clear path towards developing Tujuh Bukit, with plans to seek a strategic partner with mining expertise to help develop the huge copper mine.

In light of Intrepid's experience, Indonesia's recent export tax on partly processed ore and a ban on ore exports, it may be tough to attract a big miner with the kind of expertise needed to develop the huge copper project, said UBS analyst Tom Price.

"Given they're required to invest large sums of money just to get the project up and running, if you're a global miner ... you'd probably be thinking the risk is higher here now, perhaps I should be considering options elsewhere where the risk is lower," Price said.

PATIENT ON COPPER

The Tujuh Bukit partners, however, are undaunted by Indonesia's export ban, aimed at driving miners to process metal with Indonesia to generate more value at home.

"Copper exports are very important, and (we) believe that solutions will be found to enable copper mining to thrive in the future," said Chris Chia, managing partner of Kendall Court.

Kendall Court, which has around $300 million in assets under management, was attracted to Tujuh Bukit because of the resource and the parties backing it.

"This is one of the best undeveloped copper assets in the world and its sponsors, Provident, Saratoga and Boy Thohir, are very reputable and established," Chia said.

PT Saratoga Investama Sedaya Tbk is Soeryadjaya's private equity firm. Garibaldi "Boy" Thohir, who Forbes ranks as one of Indonesia's 50 richest people, is chief executive of coal miner Adaro Energy Tbk.

Saratoga said Soeryadjaya was unavailable to comment.

Intrepid, meanwhile, is looking to invest in gold, copper or other base metals projects in countries outside of Indonesia.

"I would say the same thing to any other foreign company looking to invest in Indonesia ... There have been some policy decisions made in Indonesia that really change the sovereign risk profile," Lowe said. (Reporting by Sonali Paul; Editing by Richard Pullin)

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