Churchill Mining: Preparing next steps in Indonesian legal battle

The news that Indonesia’s Supreme Court intends to reject Churchill Mining’s (LON:CHL) appeal is clearly a blow, however the firm’s fate does not rely solely on this one ruling alone.

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.