Churchill chairman says East Kutai licences "remain valid at this point in time"

It has been a difficult week for Churchill Mining, which has been caught up in a legal battle 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. Below chairman David Quinlivan answers our questions about the litigation. 

David Quinlivan, Chairman of Churchill Mining, answers questions about the East Kutai Coal Project in East Kalimantan in Indonesia, which has a JORC compliant resource of 2.7 billion tonnes of thermal coal, the recent ruling of the State Administrative Tribunal in Samarinda - East Kalimantan, and the company’s response to it.

*The full audio can be listed too at the bottom of this article*

What are the implications of this tribunal?

Our Indonesian legal advice is that the proceedings before the Samarinda Administrative Tribunal do not constitute an action that will immediately affect the substantive rights of the owners of the EKCP Licenses.  We understand that the decision by the Samarinda Administrative Tribunal is not final and binding as a matter of Indonesian law until after all appeal avenues have been exhausted.

Are the licences owned by Churchill / Ridlatama and are they currently valid?

We have always maintained, and have Indonesian legal advice to the effect, that the EKCP Licences remain valid at this point in time.   

Notwithstanding the decision of the Administrative Tribunal, the validity of the EKCP Licences have been confirmed separately on a number of occasions:   by (1) the BPK, an independent state agency acting as an auditing body, (2) the East Kutai police who investigated allegations of forgery in relation to the licences and found there was no case to answer, and (3) during the Administrative Tribunal proceedings themselves when the Minister of Energy and Mineral Resources' Head of Legal and Legislative Affairs gave expert testimony that the Ministry continued to regard the Licences as valid and enforceable. 

No cancellation decree has ever been lodged with the Ministry of Energy and Mineral Resources as is required by administrative protocol.  

Are there other occasions that these licenses have been reviewed?

We do not believe there are any valid grounds for review of the licenses, and that they have been valid throughout.  The above reviews (question 2 above) have supported this conclusion.  

Are these Churchill's sole assets and who were they acquired off/how long ago?

These are the majority of the assets.  These were purchased from Ridlatama Group, our Indonesian partners who retained a 25% stake.  They were acquired in 2007.

Given the problems with licensing at this early stage, if successful in appealing, can Churchill hope to develop the mine into production without recurring problems?

We have always had to meet, and will continue to have to meet, regulatory and compliance challenges, given the region of the world in which we are operating.  However if we are able to be successful on appeal, this will naturally give us a robust basis on which to move forward.

Have mining licences been granted to any other party over these same blocks? 

Not that we are aware of. 

What is the exact status of the licences at this point, have they been cancelled at any time previously?

We are advised that the proceedings before the Samarinda Administrative Tribunal do not constitute an action that will immediately affect the substantive rights of the owners of the EKCP Licenses and the decision by the Samarinda Administrative Tribunal is not final and binding as a matter of law until after all appeal avenues have been exhausted.  We therefore believe the licenses remain valid at the present time.  

In the event of the Appeal failing and the Appeal decision being final, then what would be the status of the licences and would reapplication for new licences be possible?

If the Administrative High Court appeal is unsuccessful, a further appeal can be lodged with the Indonesian Supreme Court. If the Supreme Court appeal is unsuccessful the Company can request a Civil Review of the Supreme Court decision. Further legal recourse may be sought under the jurisdiction of the International Centre for Settlement of Investment Disputes ("ICSID").

It is impossible to speculate about reapplication for new licences at the present time.  

Does Churchill own the land for both the mine and the port?

Churchill owns the land at the port.  The land related to the protect itself is owned by the local community as is normal for this part of the world.

Why weren't Shareholders told of this action by the Regent ahead of fundraising in May 2010?

At that stage we did not believe that there was any credible threat to the licences.  No cancellation or revocation decree had been lodged at that time or since with the Ministry of Energy and Mineral Resources, Central Jakarta.  We were told specifically in May 2010 by the Bupati that no revocation had been made.   

Why was there no mention of the tribunal action at the shareholder, analyst meetings late 2010 and at the AGM?

As stated before, at not stage has the company believe there was any credible threat to the licenses.  The tribunal proceedings were commenced on a narrow basis and were focused on certain procedural matters in order to have any previous cancellations officially expunged from the record to the extent they existed:  they were believed by the company not to exist or to be valid.  The Administrative Court should focus purely on procedural matters and not on substantive matters.  Questions about the validity of the licences should therefore not have arisen in the way they now appear in the judgment.  Our legal advice is that this outcome could not have been predicted at the outset of the case.  

Why were important details regarding the Licences held 'in camera' and withheld from investors?

Ridlatama and Churchill's lawyers requested that the Administrative Tribunal proceedings be held in camera until the results were made public. We received legal advice that this would be in the best interests of the Company, to avoid potential inaccurate press speculation which could have been detrimental to the process. 

Why was further information not released to the market in the RNS of 21 February 2011?

As explained, the Administrative Tribunal decision was not expected by either us or our legal counsel.  Our legal advice is that it was unpredictable.  The judgment is irregular and goes beyond the Courts administrative jurisdiction to rule on substantive matters which it should not have done.  This was entirely unexpected.  

Why were 1.2million shares issued on or around 25 February 2011 and who were they issued to?

An application for 1.2million new ordinary shares of 1 penny each to be admitted to trading on AIM, was made on 25 February 2011, following exercise of options.  The options were held and exercised by a fund and as far as we are aware the fund has retained this shareholding. 

Any shareholding which exceeds 3% must be disclosed to the market in accordance with UK securities regulations.  Also, any share-dealing by Company directors must be disclosed to the market in accordance with UK securities regulations.  It can therefore be inferred from the lack of such disclosure that this matter is unconnected with the directors. 

Is the strategic development process still underway?

The Company continues to examine various proposals despite the current situation, and discussions are ongoing.  We can say nothing further on this at this stage but will keep you informed.  

What is Churchill's current cash at bank?

Churchill's current cash at bank is US$12.2million (as at 10 March 2011) 

Can you explain the tribunal process please and the reasons for it?

Ridlatama and Churchill initiated the Administrative Tribunal in September 2010 in order to have the purported cancellations officially expunged from the record, as they considered that the Bupati had violated a number of administrative protocols.  The company wished to ensure the full valuation of the East Kutai Coal Project is derived from the strategic process.  The review was intended to address certain ongoing irregular actions and misrepresentations by third parties in Indonesia in respect to the mining licences for the East Kutai Coal Project.

Will Churchill be appealing the outcome, if not what will happen to the licences?

The Company has appealed against the decision of the Administrative Tribunal, as was announced to the market on 10 March 2011. This appeal notice was lodged on 9 March 2011 with the Administrative Tribunal in Samarinda, East Kalimantan. 

What is the appeal process?

The appeal will be heard by the Administrative High Court in Jakarta. It may take several months after lodgement of the appeal before the High Court issues its notification to the parties. This notification marks the beginning of the formal appeal process. 

What will happen if an appeal is unsuccessful?

If the Administrative High Court appeal is unsuccessful, a further appeal can be lodged with the Indonesian Supreme Court. If the Supreme Court appeal is unsuccessful the Company can request a Civil Review of the Supreme Court decision. 

Further legal recourse may be sought under the jurisdiction of the International Centre for Settlement of Investment Disputes ("ICSID").

Will the Tribunal documentation be available to all Shareholders and translated in English in an accurate word for word transcript, to avoid any ambiguity in translation?

A full summary of the Administrative Tribunal decision and a notarized English translation of the decisions will be made available to investors through the appropriate channels. 

What are the precise stages of the appeal process?

The appeal, lodged by the Company on 9 March 2011, will be heard by the Administrative High Court in Jakarta.

If the Administrative High Court appeal is unsuccessful, a further appeal can be lodged with the Indonesian Supreme Court.

 If the Supreme Court appeal is unsuccessful the Company can request a Civil Review of the Supreme Court decision. 

Further legal recourse may be sought under the jurisdiction of the International Centre for Settlement of Investment Disputes ("ICSID").

Political decision 

Why did the Regent cancel (or attempt to cancel) the licenses?

We can not speculate as to the motives of reasons of the Bupati. 

Status of other licences held/sought by Churchill

Has Churchill committed any breaches of the mining or forestry laws in Indonesia?

No, and we would refute any such allegations. It is our position that we meet our compliance and regulatory obligations. 

The Company continues to emphasizes that the Company and its partners have never done any mining at the EKCP site.

The communities around the EKCP site have never made such a complaint, a claim which was substantiated by a sworn Ministry of Forestry affidavit from the chief of the local Dayak cultural council (the traditional community's foremost authority on land issues) that affirmed that local land owners have found the EKCP partners to have never performed any illegal activities and to have acted responsibly at all times. This evidence was presented during the Administrative Tribunal proceedings.

Are the claims about forestry irregularities why the forestry permit has not been granted?

We have applied for a forestry licence, and the Forestry Ministry is currently reviewing whether or not in fact the company needs such a licence (our mining licences make clear on their face that the land is not in a forestry area).  This consideration is on-going, and we have no new information about this matter.