UPDATE 1-Brazil's Vale backs Indonesia copper/gold project

(Adds Vale confirmation, background)

SYDNEY, July 10 (Reuters) - Brazil's Vale (VALE5.SA) (VALE.N), the world's largest iron ore miner, has backed a potentially large Indonesian copper-gold project that could see it spend $40 million to acquire a 60-percent stake.

Project manager, Australian-listed Intrepid Mines Ltd (IAU.AX) (IAU.TO), said Vale had been granted an option to take up the stake in the Tujuh Bukit sulphide copper-gold project in east Java.

Participation in the project would represent the first foray into gold for Vale, which has for years eyed diversifying away from its dependence on iron ore that accounted for 57 percent of revenues in the first quarter of this year.

"Vale confirms the agreement," said a Vale spokeswoman in an email to Reuters.

The company received 4.4 percent of total first-quarter 2009 revenues from copper, according to a presentation to investors.

Intrepid and its Indonesian partner, PT Indo Multi Niaga, will retain the remaining 40 percent interest.

Intrepid said Tujuh Bukit has a potentially large gold-silver-copper system underneath a near-surface gold-silver oxide cap. Intrepid and PT IMN would retain sole rights to the oxide gold-silver deposit.

Drilling in the copper-gold zone has intercepted wide zones of mineralization, including one hole intercepting 627 metres of 0.5 grams per tonne gold and 0.5 percent copper per tonne.

(Reporting by Bruce Hextall in Sydney and Brian Ellsworth in Rio de Janeiro; Editing by Lisa Shumaker)