Churchill Mining raises £16 mln for East Kutai coal project, JORC reserve increased

Churchill Mining (AIM: CHL) said it has it has raised US$23.2 million, or £16.1 million before expenses through the placing of 16,087,700 new ordinary shares at 100p per share with institutional investors. The proceeds will be used to advance its flagship East Kutai coal project (EKCP) in Indonesia as it moves to development and production and for general working capital.

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.