Last week Churchill’s shares shed as much as 30 per cent with the news. 

One way or another, the Supreme Court’s final decision will provide investors with clarity on what Churchill’s next move will be. Last week, Churchill reported that notations on the register of the Supreme Court show it intends to reject the appeal.

The firm has been entrenched in a legal battle against the Indonesian government for the past year.  The case has put the future of the US$1.8 billion East Kutai coal mine development project in the balance.

Churchill says it has been subjected to a sustained campaign to expropriate its rights as a legitimate foreign investor in Indonesia. 

The company believes these actions are in direct breach of both Indonesia's investment laws and Indonesia's obligations under a number of international investment treaties.

The ‘expropriation campaign’, as Churchill calls it, centres of an attempt to cancel the licences that host the East Kutai project by regional authorities that govern the East Kalimantan province, the area on the island of Borneo where the project is found.

Speaking with Proactive Investors, chairman David Quinlivan said he believes Churchill did all the right things in Indonesia and it spent a lot of money on exploration.

With the apparently unsuccessful Supreme Court appeal, Churchill will have had three failed attempts to overturn a decision in a regional tribunal relating to the revocation of mining licences for the East Kutai project, which prior to the legal problems was on the verge of development.

Churchill has been actively preparing contingency plans in the six months since it filed the Supreme Court appeal.

Firstly, it sought a possible commercial settlement to end the dispute, and to this end it sent a letter to Indonesia’s president Susilo Bambang Yudhoyono in November.

“Our representative sent a letter to the President in November saying that we would like to resolve the matter commercially, and we hoped that he could help bring the parties together to achieve a commercial settlement.

A commercial settlement, basically a compensation deal, would also allow both parties to move on without any further fuss. 

But, as yet, Churchill has not received any response from the President’s office.

Prior to the legal fallout, Churchill had taken East Kutai to the verge of development with it only needing a project financing deal before construction work could start.

Quinlivan says it could take another firm a number of years to reach this point again and Churchill has no intention of handing over its valuable knowledge without an agreeable settlement.

Quinlivan says the letter to the President effectively opened a six month window of opportunity to achieve a settlement.

“We have to keep an open mind at the moment. Nothing is being ruled in or out.”

That said, Churchill hasn’t been able to catch a break in this legal battle so far, and as such the firm has also prepared to pursue a case in international courts if necessary.

Quinlivan says Churchill will file the application for arbitration to the International Centre for Settlement of Investment Disputes (ICSID) in Washington, if a settlement can’t be agreed by the end of that six month window - i.e. by the end of May.

Churchill said it will now accelerate the filing of an arbitration request against the Republic of Indonesia for direct breaches of Indonesia's investment laws and Indonesia's obligations under international investment treaties – namely the United Kingdom - Indonesia Bilateral Investment Treaty.

Preparation of the arbitration claim is well advanced and a ‘Request for Arbitration’ will be filed shortly, it explained.

The total cost of a prolonged arbitration process could be in excess of US$5 million. And Churchill has confirmed it currently has over US$13 million in the bank.

“At the moment we have sufficient funds (to cover the arbitration process). If it is going to turn into a long litigation case we would scale back and regroup. 

“We’ve had estimates from our legal team about how much a long drawn out case would cost, and we’ve certainly got more than enough to last three to four years.”

It has been a very bumpy ride for investors since the legal battle flared up publicly in March last year. 

In that time Churchill shares have lost almost 90 per cent of their value, falling from around 90p to stand today at 9.2p.

If any positives can be taken from last week's update it is that while there could still be a number of further twists and turns in the coming months Churchill can now pursue its case in an independent international court.

This comes as the firm reported that notations on the register of Indonesia’s Supreme Court show the court has rejected the company’s appeal.

The appeal was an attempt to overturn a decision in a regional tribunal relating to the revocation of mining licences for the US$1.8 billion East Kutai coal project, which prior to the legal problems was on the verge of development.

"It's disappointing to see this notation on the case register,” said chairman David Quinlivan.

“We are determined to continue to seek a legitimate remedy for our shareholders and protect our rights as a foreign investor in Indonesia."

Churchill shares fell almost 20 per cent on AIM this morning to trade at 10p each.

Alongside the appeal, Churchill also sought a possible commercial settlement to end the dispute, and to this end it sent a letter to Indonesia’s president Susilo Bambang Yudhoyono in November.

The letter highlighted that following a significant investment in exploration, Churchill identified a world-class thermal coal deposit in East Kalimantan, only to be subjected to a sustained campaign designed to expropriate Churchill's legitimate rights to develop this deposit, Churchill said.

The company has yet to receive a response to the letter.

Churchill says it will now move its attention to preparing and filing a claim against the Republic of Indonesia for direct breaches of Indonesia's investment laws and Indonesia's obligations under international investment treaties – namely the United Kingdom - Indonesia Bilateral Investment Treaty.

Preparation of the arbitration claim is well advanced and a ‘Request for Arbitration’ will be filed shortly, it explained.

Churchill also told investors it currently has US$13.84 million in the bank.

It says the company has been subjected to a sustained campaign to expropriate its rights as a legitimate foreign investor in Indonesia. The company believes these actions are in direct breach of both Indonesia's investment laws and Indonesia's obligations under a number of international investment treaties.

This has come after the company’s significant investment in coal exploration in the country, it adds.

Churchill explained that it sent a formal letter to the government in November seeking cooperation from senior officials to assist in achieving an amicable and commercial resolution to the investment dispute it is facing. 

If an amicable solution cannot be achieved the company will look to international arbitration, it said.

Churchill has a 75 per cent stake in the East Kutai project, which has a huge resource with a JORC compliant estimate of 2.7 billion tonnes of coal and a pre-tax net present value of US$1.8 billion.

The East Kutai project is a highly strategic asset, ideally located both in relation to core energy consuming markets, and in the context of rising demand for energy resources such as high quality thermal coal, Churchill said.

However, the company is currently worth just £16 million as a result of its legal problems.

Initially Churchill was in a dispute with the regional authorities that govern the East Kalimantan province, the area on the island of Borneo which hosts the East Kutai project.

It is currently awaiting an appeal in the Supreme Court of Indonesia.

The appeal was originally launched to try and overturn the decision by the Administrative Tribunal in Samarinda, East Kalimantan, concerning the revocation of the four mining licenses that comprise the East Kutai coal project.

Churchill acquired the licences in 2007 through an acquisition of a 75 per cent stake in Indonesian group Ridlatama after the previous owner Nusantra failed to extend the licences in 2006 and 2007.

Separately, Churchill is also in dispute with Ridlatama, and parties related to Ridlatama. Legal proceedings are underway against a number of parties in relation to this dispute.

Today, in the group’s interim results statement, Churchill said that most development and construction activities at the project have been suspended pending the appeal decision of the Supreme Court.  

“We have, however, continued to support the local East Kutai communities through ongoing community development and social programs,” the company said.

“Transportation assistance has been provided to local and public service organisations in and around the EKCP site and we have also assisted local communities with infrastructure maintenance where requested.  

“The East Kutai population continues to strongly support our endeavours to maintain our licences despite the fact that employment numbers in both our land acquisition teams and base camp have been significantly reduced as a result of the actions of the regional government.”

Churchill reported a US$6.4 million loss for the period, which increased from US$3 million last year.

Expenses were increased at US$5.1 million due to a higher spend on public relations, government and media outreach costs, legal, professional and consulting expenses. 

Within that, legal and professional fees totalled US$1.5 million, which reflects the significant costs incurred as a result of the Administrative Tribunal, subsequent appeal to the Supreme Court of Indonesia and the on-going dispute with Ridlatama, Churchill said.

As of December 31 2011, Churchill had US$22.4 million in cash and it said it presently has US$14.3 million in the bank.

In a letter to the government, Churchill claims it has been subject to unjust and unlawful actions by a number of parties including the East Kutai Regency and other Indonesian Government ministries.

“Various Indonesian parties, both government and private, seeking to expropriate its legitimate rights to develop the East Kutai coal deposit are in direct breach of both Indonesia's investment laws and Indonesia's obligations under a number of international investment treaties,” it said.

Churchill wants cooperation from senior government officials to help solve the dispute, but if “amicable resolution” cannot be achieved the firm said it will initiate international arbitration against Indonesia.

The East Kutai project is a huge resource with a JORC compliant estimate of 2.7 billion tonnes of coal and a pre-tax net present value of US$1.8 billion.

Churchill acquired the licences in 2007 through an acquisition of a 75% stake in Indonesian group Ridlatama after the previous owner Nusantra failed to extend the licences in 2006 and 2007.

Churchill subsequently discovered the coal reserves in 2008, after which the East Kutai Regency granted an extension to Nusantra’s previous licences.

In March, a tribunal ruled that Churchill and Ridlatama no longer owned the East Kutai project. 

Churchill filed an appeal against this judgement in Indonesia’s Supreme Court in September. 

Churchill Mining (LON:CHL) this afternoon gave investors an update on its dispute with members of the Ridlatama Group.

The dispute relates to breaches of the 2008 investors agreements, it said. 

The agreements are between Churchill's subsidiary, PT Indonesia Coal Development (ICD), and members of the Ridlatama Group.

Churchill said that ICD has received two letters from Ridlatama Group companies, PT Investmine Nusa Persada (INP) and PT Investama Resources (IR), which claim that ICD failed to make initial purchase payments. 

As a result INP and IR were seeking to unilaterally terminate the Investors Agreement with ICD, it added.

However Churchill said that ICD categorically denies the allegations made and says that all payments due for the purchase of its interest in these companies have been made in full, pursuant to the terms of the Investors Agreement. 

“ICD has also referred the two letters received from INP and IR to its solicitors in Indonesia and Singapore and received advice that the INP and IR letters have no legal merit and are ineffective,” Churchill said. 

“Accordingly ICD will take whatever action it deems necessary to fully protect its legal rights in this matter.”

Churchill explained that the IR license holds approximately 6.8 per cent of the JORC resource within the East Kutai coal project and no resources have to date been identified on the INP license.

Additionally the company said that it is continuing with the unlawful act claims against Mr Rinaldi in Indonesia in addition to arbitration proceedings in Singapore against other members of the Ridlatama Group for breaches of the investors agreements.

In yesterday’s financial results, for the twelve months ended June 30, the group revealed that it has now made a full write down of the stalled East Kutai coal project.

Chairman David Quinlivan expressed the group’s surprise at the negative ruling from the regional authorities, at a tribunal in March, which has brought the development of the world class East Kutai coal project (EKCP) to a standstill.

The regional tribunal Churchill sought to overturn a move by a local authority to revoke the licences which host the East Kutai project. The company believes the negative ruling was fatally flawed, because “it did not properly address (and in some cases did not address at all) a number of key issues raised during the hearing”.

A subsequent appeal to the Administrative High Court in Jakarta was dismissed. Churchill is now pursuing an appeal to the Indonesian Supreme Court, and it says it will continue to pursue all legal avenues available.

In today’s results Quinlivan told investors that Churchill will “continue to vigorously pursue its claim for the full reinstatement of its rights in relation to the EKCP”.

“If the company does not receive a satisfactory outcome it may ultimately pursue further claims via the international courts under bilateral investment treaties,” McGeary said in a note to clients.

“(Churchill) continues to lobby at high levels backed by its new major Indonesian shareholders and board members, Mr Rachmat Gobel and Ms Fara Luwia.”

But according to McGeary the key takeaway fact from yesterday’s results is the fact that Churchill still has a US$18 million fighting fund in the bank. 

“Going forward the company is well capitalised to continue pressing its legal case,” he added.

“At present cash burn is predominantly of a legal nature but the company has managed these costs well, utilising its high level contacts and legal teams cost effectively.”

The analyst maintains a cautious view on the stock because of the ‘very uncertain’ legal backdrop in Indonesia. 

“While we point to strong cash backing and significant inherent value of the underlying assets if title can be effectively upheld, we maintain our caution given the uncertain outcome and timeline of legal proceedings underway,” McGeary surmised.

Harry Norman: Hallo. This is Harry Norman for Proactive Investors and welcome to another Proactive audio interview. 

Today is the 27th of September 2011 and I'm talking with David Quinlivan, Executive Chairman of Churchill Mining, listed on the AIM market, mining sector; stock ticker CHL; share price 16.25 pence; market cap 19.65 million pounds sterling; web address churchillmining.com. 

David thank you very much for joining us for this interview.

David Quinlivan: My pleasure Harry.

Harry Norman: Could you provide a summary of the results of the appeal to the Administrative High Court in Jakarta and was there any new information considered to support Churchill’s case?

David Quinlivan: Unfortunately the High Court affirmed the decision of the Administrative Tribunal in its entirety without providing any detailed reasons or basis for doing so. 

The High Court didn’t give its reasoning nor did it deal with the new points raised in the appeal that were not previously raised. Churchill was looking for the High Court to give its own grounds of reasoning instead of simply adopting the lower court’s decision.

Harry Norman: Who does the Administrative High Court believe owns the East Kutai Coal Project David?

David Quinlivan: Harry it was not the role of the High Court to rule on who owns the East Kutai Coal Project. 

The appeal to the High Court in Jakarta was launched to seek to overturn the decision by the Administrative Tribunal in Samarinda, East Kalimantan, in relation to the relocation of the four mining licences that comprise the East Kutai Coal Project. This is the project that Churchill has a 75% interest in. 

Both Nusantara and Churchill contend that they have licences over the East Kutai Coal Project area. There is as yet no clear legal process to resolve directly the priority between these licences. Churchill continues to believe that its claim is valid and to pursue all avenues to demonstrate this.

Harry Norman: Could you provide an update on the current appeal to the Supreme Court of Indonesia?

David Quinlivan: The company filed its notice of appeal for all four cases on the 15th of September 2011 and yesterday lodged the memorandum of appeal to the Supreme Court of Indonesia. 

The company strongly objects to the original ruling of the Administrative Tribunal in Samarinda and remains committed to protecting its interests in the East Kutai Coal Project and seeking an appropriate remedy for its shareholders.

Harry Norman: The Indonesian Supreme Court reviews all relevant information available to it and has a series of prior cases where it overruled High Court decisions. Do you feel that there is a case for Churchill in this instance?

David Quinlivan: There are three grounds for an appeal to the Supreme Court and these are that the judges at the lower courts have 1) not had the authority to hear the case, or the case exceeds their authority, 2) misapplied or violated the prevailing laws, or 3) failed to meet the requirements contained in the prevailing laws which provide for an annulment of such failure. 

The company’s position in the first place is that the Bupati has misapplied the Minerba Law and good corporate governance. 

This is also a ground for the current appeal. The Samarinda Administrative Court and the Jakarta High Administrative Court have misapplied the same law in rendering their decisions. 

While it’s difficult to anticipate the Supreme Court’s decision we believe Churchill has a credible case to submit to the Supreme Court. 

Harry Norman: How confident are you that the company will be successful in the Supreme Court and do you have an idea on the likely timeframe for a decision?

David Quinlivan: Harry the company strongly disagrees with the original Administrative Tribunal decision and has sought and followed legal advice of international and Indonesian counsel in relation to protecting its interest in the East Kutai Coal Project. 

While it’s difficult to anticipate the Supreme Court’s decision following its assessment of the facts, Churchill maintains its argument that the [Bupati] has misapplied the Minerba Law and good corporate governance in revoking the licences and we’re hopeful that the Supreme Court will agree with Churchill’s position. 

At this point we don’t have any indication on the likely timeframe but will keep shareholders advised as appropriate.

Harry Norman: For the appeal do you intend to follow the same strategy for the Supreme High Court as you did for the Administrative High Court? And if yes do you think the outcome will be different and if so why?

David Quinlivan: The strategy is essentially the same. That is we will be rebutting all decisions of the Samarinda Administrative Court and the Jakarta High Court. 

It’s difficult to predict the outcome. However since the judges at the Supreme Court are generally more senior and have more experience than the judges at the lower court we’re hopeful that they will come to a different conclusion than the lower courts. 

Harry Norman: Is there a successful precedent for your case?

David Quinlivan: Harry we’re not aware of any precedents that are similar to our case from a mining perspective. However there is precedent for plaintiffs who’ve won at the Supreme Court despite the fact that they’ve lost in the lower courts.

Harry Norman: Who are Nusantara and can they now legally take possession of and develop the East Kutai Coal Project David?

David Quinlivan: Harry we understand Nusantara is an Indonesian group that held exploration KPs over similar areas to the East Kutai Coal Project and that these Nusantara licences had expired prior to the granting of the licences to Ridlatama. These are the licences that Churchill has a 75% interest in. 

More recently the [Bupati] issued exploration IUPs to Nusantara which are valid for two years with one year granted for exploration phase and one year granted for construction phase. 

There appears however to be a period of over two years during which the Nusantara Group does not appear to have had any valid licences around the East Kutai Coal Project area. 

It appears that Nusantara was granted some type of extension to the original licence in 2008; two years after Nusantara’s original licence had expired. 

Churchill believes that its licences relating to the East Kutai Coal Project take priority over Nusantara and the extension granted to Nusantara in 2008 should not have been issued. Churchill continues to consider appropriate avenues to address this point. 

Irrespective of this the company still has a presence at the East Kutai Coal Project site and regular involvement with the local community.

Harry Norman: If the appeal to the Supreme Court is unsuccessful, what’s next? Is there any possibility of claims using a bilateral international treaty?

David Quinlivan: Should the company be unsuccessful the company would look to be seeking a judicial review of the Supreme Court decision. 

The company would also review its options in relation to international arbitration and where necessary instruct international counsel to conduct a thorough and detailed review of the company’s investments in Indonesia to determine if it’s a qualifying investment under the relevant bilateral investment treaty.

Harry Norman: On the more important note of restoration of licences, is there still some possibility that this would – or could – be settled out of court? If so, is this still the case?

David Quinlivan: Harry at this point there’s no progress on any out of court settlement but we’ll certainly keep shareholders informed if there is any such development. 

Harry Norman: Are Churchill’s new Indonesian shareholders assisting with the legal processes and with any processes outside the courtroom David?

David Quinlivan: Harry our new Indonesian shareholders and Churchill board members, Rachmat Gobel and Fara Luwia, have been assisting the legal process and advising various levels of government in relation to the issues that Churchill faces. They continue to be active in supporting the work towards a favourable outcome for Churchill in the East Kutai Coal Project. 

Harry Norman: Could you provide more information in relation to the legal dispute with the Ridlatama Group? What have they allegedly done wrong?

David Quinlivan: The dispute relates to alleged breaches of the investors’ agreements entered into between Churchill’s subsidiary PT Indonesia Coal Development and members of the Ridlatama Group. 

Churchill believes that the Ridlatama Group has breached various provisions of the investors’ agreements including warranties in relation to the East Kutai Coal Project not being the subject of any third party claims. 

Churchill will pursue legal action in both Indonesia and Singapore against the Ridlatama Group, its shareholders and its principals, in accordance with the dispute resolution provisions contained in the investors’ agreements. 

While Churchill’s claims against Ridlatama relate in part to information that emerged in the Administrative Tribunal hearing earlier this year, the claims do not prejudice the appeal of the Administrative Tribunal decision that’s currently in progress. 

Harry Norman: Have all relationships now broken down with the Ridlatama Group completely?

David Quinlivan: Harry Churchill and Ridlatama have both rejected the conclusions of the Administrative Tribunal and continue to work together in relation to the current appeal to the Supreme Court of Indonesia.

Harry Norman: If Churchill Mining is successful in its action with the Ridlatama Group what outcome will actually be achieved and have you any idea how long this may take?

David Quinlivan: Churchill has sought to recover monetary compensation against the Ridlatama Group. If successful, Churchill would be able to enforce any award or judgment for monetary compensation against the various members of the Ridlatama Group. 

Proceedings before Indonesian courts and arbitral tribunals in Singapore may take up to one year to conclude and for decisions to be obtained.

Harry Norman: What is the approximate cash burn on the legal cost and what is Churchill Mining’s current cash position?

David Quinlivan: Harry the company has incurred legal expenses of approximately 1.4 million US Dollars for the period from January to June 2011 in relation to the Administrative Tribunal action and subsequent appeals. 

The company remains well funded with 19.7 million US Dollars cash on hand as at 19th September 2011. 

Harry Norman: Could you advise on what is happening with the project and with securing land between the proposed mine and the port? Are there any current activities at site or is everything on hold David?

David Quinlivan: Harry we continue to look at the various options in relation to securing land between the proposed mine and the port but there’s been no substantive progress on this. 

The company still has a presence at the East Kutai Coal Project site and regular involvement with the local community but there are currently minimal operational activities at the East Kutai Coal Project site.

Harry Norman: Can you explain to shareholders why options at 50p were awarded to the directors and management of Churchill?

David Quinlivan: Harry the issue of incentive options to directors and management has always been and will continue to be part of our normal remuneration policy. 

The directors have included a reasonable premium over the prevailing share price and the level of options issued as a percentage of shares on issue remain well within institutional and investor guidelines.

Harry Norman: While the legal proceedings continue is Churchill mining evaluated any other projects or assets David?

David Quinlivan: Harry the company remains open to considering other projects or assets but has not conducted any recent evaluation with management’s time being currently focused on resolving the issues with the East Kutai Coal Project.

Harry Norman: Remember Proactive Investors is not an investment advice service. Make sure you register at proactiveinvestors.co.uk for our weekly newsletter which will keep you informed about our articles, interviews, and events. Thank you for listening. 

END AUDIO

The group’s primary asset is its 75 per cent stake in the ‘world class’ East Kutai coal mine development project in Indonesia’s Kalimantan region.

The future of the project, which hosts 2.73 billion tonnes of coal resources, is in uncertain because local authorities say that Churchill do not have the right to develop the project, after the East Kutai Regent requested that the firm’s licences are cancelled.

The planned East Kutai mine would have a net asset value of around US$1.8 billion, however at the current share price Churchill’s market value is just under £25 million. 

After two failed appeals in Indonesian courts - first in a regional tribunal and then in the High Court of Jakarta – Churchill is now planning an appeal to the Indonesian Supreme Court.

Today the group loaded an English translation of a report relating to the High Court Decision onto its website. The report spiked interest among investors and the share price gained 2p a share, over 10 per cent, to trade at 21p.

Separately in a note to clients Andrew McGeary, analyst at Churchill’s house broker Northland Securities, maintained a cautious stance on the stock but pointed out the stock’s potential for a rebound.

“The £23m market cap (prior to today's rise) reflects a modest £9.6 million premium to cash at £13.4 million suggesting there is potential for a strong rebound if the company is able to alter the verdict at the Supreme Court, or if some sort of compromise can be reached on the assets.”

Churchill Mining (LON:CHL) told investors that it has delivered a ‘notice of dispute’ to its minority partner, the Ridlatama group, and several related individuals.

It said that the dispute relates to alleged breaches of agreements between Churchill's subsidiary, PT Indonesia Coal Development, and members of the Ridlatama Group.

“Churchill believes that the Ridlatama Group has breached various provisions of the investors agreements.  Ridlatama now has the opportunity to resolve the dispute within 30 days,” the company said.

“If there is no resolution within 30 days, Churchill will pursue legal action in Singapore against the Ridlatama Group, its shareholders and its principals in accordance with the dispute resolution provisions contained in the investors agreements.”

The AIM-listed firm owns a world class coal mine development, the East Kutai project, but it has stalled in recent months due to a legal dispute with local authorities – who tried to cancel the four licenses that host the project. 

In March a regional tribunal rejected Churchill’s attempt to have the cancellations officially expunged from the record.  

The following month Churchill told investors that Ridlatama received letters of rejection, for applications for two of the four licences, back in 2010 however Churchill had not been made aware of this prior to the tribunal.

An appeal will be heard by the Administrative High Court in Jakarta.

This morning Churchill said that the claims against Ridlatama, which relate in part to information that emerged in the Administrative Tribunal hearing earlier this year, do not prejudice the appeal.  

“Churchill and Ridlatama have both rejected the conclusions of the administrative tribunal,” the company reiterated.

The group recently brought on-board two influential Indonesian businessmen, Rachmat Gobel and Fara Luwiam, through a share subscription. The two new investors have also taken seats on the board. 

The stock purchase was viewed as a significant endorsement of the company and the potentially world-class East Kutai coal project. 

In June chairman David Quinlivan said: “Although Churchill is already well funded, the constructive injection of capital, and the associated premium paid, demonstrates their support for the project.  In addition, we are excited that Mr. Radke is joining the board and bringing to Churchill the depth and breadth of his corporate, legal and market expertise."

Churchill Mining (LON:CHL) told investors that its new Indonesian investors have been appointed to the board of directors.

Between them the two Indonesian executives, Mr Rachmat Gobel and Ms Fara Luwia, have subscribed for just over 19 million new shares in the company. The shares were priced at 40 pence each – a 60 percent premium at the time of the agreement – and they represent around 16 percent of the enlarged share capital.

The subscription was viewed as a significant endorsement of the company and the potentially world-class East Kutai coal project – which has become entangled in legal problems.

"We remain delighted to gain the reach and experience of Mr. Gobel and Ms. Luwia as they join us, both as investors and Board Members,” chairman David Quinlivan said.

“Although Churchill is already well funded, the constructive injection of capital, and the associated premium paid, demonstrates their support for the project.  In addition, we are excited that Mr. Radke is joining the board and bringing to Churchill the depth and breadth of his corporate, legal and market expertise."

The placing raised £7.7 million in new capital, which will be put towards the development of the East Kutai project.

The cash will see the company through a tricky period of its development as it fights a legal rearguard over its East Kutai coal project in the East Kalimantan region of the country. Indeed analysts believe the two influential business people Churchill has brought on board could provide some much needed local expertise. 

Rachmat Gobel controls a well-known and highly respected Indonesian company, called PT Gobel International, which has an impressive track record of partnering international companies, Churchill said.

Gobel a director for several companies and he is also vice chairman of the Advisory Board of the Indonesian Chamber of Commerce and Industry, the vice chairman of the Employers' Association of Indonesia.

Luwia is the president of PT Goldkey Property, which handles large commercial property and land deals in Indonesia.  

Churchill also revealed that Pala Investments – one of Churchill's largest shareholders – has appointed Gregory Radke to represent it on Churchill’s board. Radke will be a non-executive director.

The new investors are Rachmat Gobel and Fara Luwia, and they are acquiring 19.3 million shares at 40 pence each – a 60 per cent mark-up to 20-day average price of the stock. The pair will own 16.5 per cent of the enlarged company.

Churchill is currently embroiled in a major legal battle over the future of its East Kutai project in Indonesia, and it will be hoped the acquisition of two influential partners will help in its bid to hold onto the coal mine.

Gobel is the head of  Gobel International, which has partnerships with Japan’s Matsushita Corporation and is the local representative of Qatar Telecom, while businesswoman Luwia is currently developing one of the largest rice mills in the country in partnership with a Swiss commodity trader. 

Chairman David Quinlivan said: "Churchill welcomes Mr Gobel and Ms Luwia as both shareholders and strategic partners.  

"They have a significant on-ground presence in Indonesia and Churchill believes that they will provide the local expertise and experience necessary to advance the East Kutai Coal Project through to its production phase in the most expeditious manner possible."

Gobel added: "I am looking forward to working with Churchill to advance the East Kutai Coal Project into development.  

“I believe that this project will be a significant contributor to East Kalimantan's economy and bring substantial benefits to the region and Indonesia as a whole."

Paul Mazak is stepping down as managing director of Churchill Mining  (LON:CHL)  to focus on the company’s Administrative High Court appeal in Indonesia, it was revealed today.

David Quinlivan moves from non-executive to executive chairman and will take day-to-day control of the company.

It has been a turbulent two-and-a-half-weeks for the company which has been fighting a legal rearguard in Indonesia.  

A  regional administrative tribunal  ruled against the company, which has been trying to protect the legal standing of its mining licences for the East Kutai coal project – a 2.73 billion tonne coal resources. 

Churchill has already announced it is appealing the decision.

In a short statement to the stock exchange this afternoon it said: “Churchill wishes to announce the following changes to its board of directors and management structure.

“Mr Paul G Mazak will step down as Managing Director and from the Board to initially focus on assisting Churchill and its Indonesian partners prepare for the upcoming Administrative High Court appeal.

“Mr David Quinlivan, currently non executive chairman of Churchill, will take over the day to day running of the company as executive chairman.”

No further details were given. 

However in a recent interview with Proactive Investors, Quinlivan said: “We have always maintained, and have Indonesian legal advice to the effect, that the EKCP licences remain valid at this point in time.”    

Last week the Samarinda tribunal ruled against Churchill.

Previously the East Kutai Regent (Bupati) - an authority that governs the East Kutai administrative region of Indonesia's East Kalimantan Province - had purported to have cancelled the four mining licenses. Churchill had referred the matter to the tribunal in Samarinda.

It was an attempt to have the original cancellations officially expunged from the record because they considered that the Bupati had violated a number of administrative protocols.

On 3 March 2011 Churchill said it strongly disagreed with the decision and it was evaluating options to remedy the situation.

This morning it confirmed that it has now filed an appeal to the Administrative Tribunal in Samarinda, and the appeal will be heard in Jakarta by the Administrative High Court.

Churchill said it may take several months before the Administrative High Court issues its notification to the parties, which will mark the beginning of the formal appeal process.

In the mean time it expects to receive the full written ruling from the Samarinda tribunal – Thursday’s ruling was given verbally – in about two weeks. 

It will then be reviewed, for the purpose of preparing and filing the memorandum of appeal – which will contain the arguments that Churchill will put forward to the high court.

Churchill also confirmed that it currently has US$12.2 million in cash.

Earlier this week the company also reminded investors that it is continuing to talk with prospective partners for the development project (Read More).

The bounce saw the stock recoup some of the lost ground from Friday’s session, in which it slumped from 90.25 to as low as 26.75 pence a share, after it revealed the details of a legal setback to the development of the world class East Kutai coal project in Indonesia (Read More).

This afternoon it told investors that it is not aware of any specific reason for today’s share price movement.

Meanwhile it reiterated that it continues to evaluate its legal options, including an appeal to the Administrative High Court in Jakarta.

Additionally it also reminded investors that it continues to talk to prospective partners for the development project (Read More).

At 15:20 on London's AIM market, Churchill shares were up 10.5 pence, about 40 percent, changing hands at 37.25 pence each. 

Churchill Mining (LON:CHL) told investors that it is evaluating a variety of options for the massive East Kutai coal project in Indonesia.

Investors were gripped by a volatile trading session on Monday, amid reports that Churchill was in talks to sell the project. 

A report in the Indian Economic Times claimed that Churchill is in talks with several Indian power companies to sell the Indonesian coal project. Then Northland Capital, Churchill’s nominated advisor (NOMAD) on the AIM market, confirmed that Churchill plans to sell and it is negotiating with Indian companies. 

Today Churchill released a regulatory statement to investors on the London Stock Exchange, in which it confirmed it is discussing a variety of options to take the project forward.

“There has been a significant response from interested parties in a number of countries, primarily; India, Indonesia, South Korea and South East Asia, and as expected, discussions with potential partners, financiers and purchasers remain ongoing,” the company said this afternoon.

East Kutai is a world-class thermal coal deposit. It has a 961 million tonne JORC mining reserve and 2.73 billion tonnes of JORC resources. The sheer scale of the project is reflected by the US$1.2 billion (direct capital costs) needed to build the mine.

Once operational the proposed open pit would produce 30 million tonnes of high grade thermal coal each year, for an initial 25-year life. It would generate cashflow of US$500 million each year.

Churchill hired corporate heavyweight Credit Suisse back in April 2010 to complete a strategic review and help it evaluate the various options for East Kutai’s project financing.

"Realising the huge potential of the world class East Kutai Coal Project requires significant capital investment and as part of the process, potential partners are undertaking detailed and lengthy due diligence in order to formulate their proposals,” managing director Paul Mazak said.

“We are working with all parties with a view to achieving a result that will maximise returns for shareholders and we look forward to further updating the market in due course."

The port stockyard will have four stockpiles with a total storage capacity of 852,000 tonnes.

The wharf facility will be equipped with two dedicated ship loaders capable of handling 30 million tonnes per annum (Mtpa) of coal.

The wharf facility will handle shipping from Handymax to Capesize 210,000 DWT vessels.

In September this year, Churchill received internal sign-off on the port site from the Department of Transportation, initiating the land acquisition process.

The location of the port facility is a key component for the direct access of exporting thermal coal to the international markets, said the company.

“We believe that the port location is the best available site within the region, and are proud that our land acquisition team successfully completed the acquisition of this site in rapid time,” said managing director of Churchill Mining Paul Mazak.

The wharf facility will handle shipping from Handymax to Capesize 210,000 DWT vessels.

Broker Northland Capital Partners said that the stockyard represents a significant part of Churchill’s land acquisition programme.

“The company continues to build key components of the EKCP story as it works towards a JV, farm-out or sale.

“This demonstrates its ability to negotiate successfully with a number of disparate land owners and advances the project in terms of its marketabaility,” said Northland Capital.

Churchill has hired Credit Suisse to find what Mazak called a “big brother with deep pockets” to fund the development of the mine, which has a net present value of US$1.8 billion.

However, Churchill is keeping all of its options open and is still looking at possibly running East Kutai as a stand-alone project funded by equity and debt.

In September the company passed a major milestone when the eagerly awaited feasibility study confirmed East Kutai as a world class deposit with a JORC resource of 2.73 billion tonnes.

To ensure the success of the project Churchill has created an Indonesian advisory board that “guarantees access to all levels of industry and government” and it has negotiated an off-take deal with the state electricity company.

According to the broker, formerly known as Astaire Securities, the recent feasibility study, which it called the key event in the period, brought few surprises, giving the project a net present value (NPV) of US$1.8 billion and anticipating capital expenditures (capex) of US$1.6 billion.

The NPV of US$1.8 billion translates to £12.6 per share before tax.

Northland said that with sensitivities taken into account, a very conservative coal price projection of US$39/tonne compared to the US$47/tonne used for the study and a “more aggressive” 12% discount, 25% of the project would be worth 223 pence compared to the current share price of 113 pence.

East Kutai has a JORC reserve of 961 million tonnes (Mt) from a total JORC resource of 2.7 billion tonnes from only two of four licences.

The broker note also drew investors’ attention to the fact that East Kutai’s resource is of high quality sub-bituminous, low ash and low sulphur thermal coal, which it said was “world class.”

Moreover, Churchill is targeting the booming markets of India and China as well as the domestic market in Indonesia, making it unlikely that it will experience problems with finding customers for its production.

As per a recent report by Bloomberg, Africa’s biggest coal export harbour was selling more to Asia than to Europe for the first time ever, largely due to the rapid economic growth in China. Supplies to Europe declined 41% in the first months of the year, while Asia has received 45% more shipments, said Bloomberg.

Northland noted that Churchill ended the past financial year with a cash position of US$23 million, which eclipses of the US$21 million expenditures earmarked for the next twelve months.

Net assets at the 12 months to June 30 were US$48.9 million, up from US$29.5 million a year earlier, while losses for the year were considerably reduction from US$15 million in 2009 to US$6.3 million.

The broker has worked out different scenarios for the development of the project. With a 12% discount factor, the project valuation ranges from US$173 million at a coal price of US$37/tonne to US$1.8 billion at US$51/tonne with breakeven just shy of US$35/tonne.

If a 10% threshold is applied, breakeven falls to below US$35/tonne.

Churchill is currently trading at around 11% of the company’s post tax NAV for East Kutai, which Northland said discounted a considerable amount of risk that either that valuation is overblown or that the project will fail to attract financing.

The broker said there could be a significant upside to valuation if funding is secured.

In April, Churchill hired Credit Suisse (NYSE:CS) as strategic advisor to assist it with finding a funding solution for the project., which could include joint venture (JV) partners and potential acquirers.

“Ahead of that, while much depends upon potential deal terms (a major uncertainty at this stage), upside of between 15-20% (142p-190p) does not seem too demanding,” concluded Northland.

“For shareholders, the achievable value is of course dependent on the extent of NAV an interested party is prepared to pay,” added Northland.

Credit Suisse will work with Churchill to complete a strategic review process, evaluating options for financing the project, which will include the development of East Kutai with a joint venture partner or the conclusion of a long-term off-take agreement.

The placing was oversubscribed and the offer size increased to the maximum number of shares available to be issued under existing authorities.

Following additional analysis undertaken by independent coal geology and mining specialists SMG Consultants (SMGC), Churchill also announced an increase in the JORC mining reserve of thermal coal for the EKCP, in which Churchill Mining has a 75 percent interest.

The updated EKCP Geological Reserve statement, compiled by SMG Consultants, increases the JORC mining reserve to 961 million tonnes from the 956 million tonnes announced in October 2009. The measured JORC Resource now stands at 693 million tonnes, up from 556 million tonnes, the indicated resource has increased to 825 million tonnes from 777 million tonnes, and the EKCP now has 1.212 billion tonnes in the inferred resource category, compared to 1.149 billion tonnes.

The total JORC Resource has increased to 2.73 billion tonnes from 2.482 million tonnes as of October 2009.

Managing director  Paul Mazak commented: “I'd like to thank existing shareholders for their exceptionally strong support in this capital raising. In particular Pala Investments who have contributed additional funds so as to maintain their current level of equity in the company and Advaita Partners, who are involved in the Indian power industry and who have significantly increased their stake from 8 percent to 15 percent of the enlarged share capital.  I also welcome new institutional shareholders to our register.  These funds will help Churchill move into the next phase of our development of the world class East Kutai Coal Project."

Astaire Securities mentioned the company in its Morning Report, stating: "Support for the placing and the reserves upgrade announced today both reinforce our confidence in Churchill’s ability to become a major coal producer in Indonesia. The involvement of Advaita Partners, who are involved in the Indian power industry, is also very encouraging."

Only a fortnight ago, Churchill appointed Paul Graus as chief financial officer and simultaneously announced it has formed an Indonesian advisory board to guide the group in the development of its flagship East Kutai coal project in the country.
 
Graus has more than 30 years accounting experience with nearly 20 years in the global mining industry, including a number of years in the Indonesian mining sector focused on coal and tin.
 
Graus has acted as an advisor to the board of directors of PT Tambang Batubara Bukit Asam, one of the largest Indonesian coal mining companies, where he assisted management with the financial and corporate restructuring of the business.
 
Before joining PT Tambang Batubara Bukit Asam, he acted as a senior advisor to the board of PT Tambang Timah TBK, one of the world's largest tin mining companies, where he was involved in all aspects of the company's management with a core focus on financial management and preparation for its listing on the London Stock Exchange.
 
Most recently, Graus was group finance manager for First Quantum Minerals Ltd (TSX: FM, LSE: FQM) an international metals and mining company with a market capitalisation in excess of C$7 billion, where he managed the group’s project accounting functions to support the rapid expansion and development of the group's assets towards production. 
 
In support of Churchill's continued development into becoming a major Indonesian coal producer, Churchill has formed a prestigious Indonesian advisory board with extensive experience in high level government positions in Indonesia.  The advisory board will provide Churchill with high level strategic counsel as well as increased access to all levels of industry and government.
 
At the end of April, Churchill signed an MOU with a state firm aimed at establishing a coal enhancement plant on Churchill’s East Kutai property and securing an additional off-take for 5 million tonnes per annum (Mtpa).

The deal was signed with PLN-Batubara (PLN-B), a subsidiary of Indonesian state electricity firm PT Perusahaan Listrik Negara (PLN).  Under the MOU, PLN-B will review the purchase of up to 5Mtpa of coal from Churchill.  This additional coal production would be over and above the 20Mtpa already planned for mining in the northern area the project, significantly increasing Churchill's forecast coal sales.

The partners will establish a joint study group to focus on the use of the PLN's coal drying and enhancement technology (Licol) for use with coal from East Kutai.  Initial testing on Churchill's coal with the Licol process has already successfully upgraded Churchill's sub-bituminous coal to coal with bituminous characteristics, increasing its value.
 
Upon successful conclusion of the review, PLN-B would build an initial commercial Licol coal enhancement plant module of 250,000tpa at its cost, to be followed by additional modules to enable the production of up to 5Mtpa of enhanced coal.

A week prior to announcing the MOU, Churchill appointed Credit Suisse as strategic advisor with regard to the development of East Kutai.  The Zurich-based group is a major player in the Indonesian market and has been involved in some massive deals involving coal assets in the country. The appointment should help turn Churchill into a major exporter of thermal coal to the expanding Asian energy market.

Credit Suisse will work with Churchill to complete a strategic review process, evaluating options for financing the project, which will include the development of East Kutai with a joint venture partner or the conclusion of a long-term off-take agreement.

Astaire Securities mentioned Churchill in its Morning Report, commenting: "Both the appointment of an experienced CFO with relevant mining industry and country experience and the appointment of an Indonesian advisory board will be well received. Both will further Churchill’s goal of becoming a major coal producer in the country."

At the end of April, Churchill signed an MOU with a state firm aimed at establishing a coal enhancement plant on Churchill’s East Kutai property and securing an additional off-take for 5 million tonnes per annum (Mtpa).

The deal was signed with PLN-Batubara (PLN-B), a subsidiary of Indonesian state electricity firm PT Perusahaan Listrik Negara (PLN).  Under the MOU, PLN-B will review the purchase of up to 5Mtpa of coal from Churchill.  This additional coal production would be over and above the 20Mtpa already planned for mining in the northern area the project, significantly increasing Churchill's forecast coal sales.

The partners will establish a joint study group to focus on the use of the PLN's coal drying and enhancement technology (Licol) for use with coal from East Kutai.  Initial testing on Churchill's coal with the Licol process has already successfully upgraded Churchill's sub-bituminous coal to coal with bituminous characteristics, increasing its value.
 
Upon successful conclusion of the review, PLN-B would build an initial commercial Licol coal enhancement plant module of 250,000tpa at its cost, to be followed by additional modules to enable the production of up to 5Mtpa of enhanced coal.

A week prior to announcing the MOU, Churchill appointed Credit Suisse as strategic advisor with regard to the development of East Kutai.  The Zurich-based group is a major player in the Indonesian market and has been involved in some massive deals involving coal assets in the country. The appointment should help turn Churchill into a major exporter of thermal coal to the expanding Asian energy market.

Credit Suisse will work with Churchill to complete a strategic review process, evaluating options for financing the project, which will include the development of East Kutai with a joint venture partner or the conclusion of a long-term off-take agreement.