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In a statement released on Friday, Churchill Mining Plc (LSE:CHL) announced that it has filed a formal letter with the Republic of Indonesia, appealing to senior government officials for a solution to their current investment dispute. In response to the news, the share price went up over 50% to 14.5p by the early afternoon.
In a letter to the Indonesian government, Churchill was very clear in its intentions, stating:
“We are writing to bring to your attention the significance and urgency of this situation in the expectation that you will exercise your authority to take the necessary steps to achieve an amicable resolution of this situation. If an amicable resolution cannot be achieved, we regret that Churchill will have no other choice than to initiate international arbitration against the Republic of Indonesia, thus putting Indonesia’s reputation as a reliable country for foreign investment at risk.”
Background on the Dispute
According to the company’s evidence presented in the letter, the East Kutai Regency issued four Mining Authorities to companies collectively referred to in the note as Ridlatama in 2007. The authorities covered a total area of approximately 35,000 hectares within the East Kutai Regency.
Before the authorities were bought by Ridlatama, they were determined to be “open” and not subject to any other licenses, according to a report issued by the East Kutai Department of Mines in early February 2007. The space was deemed open because the company that previously occupied the territory, Nusantara Group, failed to renew their Mining Authorities which expired in March 2006 and March 2007.
Churchill, seeing the opportunity, began to acquire a majority interest in Ridlatama in 2007 and early 2008. After investing heavily in the operation, Churchill discovered a coal site, now known as the East Kutai Coal Project.
According to the company, they were issued exploration licenses on 9 April, 2008, followed by 40 year exploitation licenses on 27 March 2009.
In 2008, Churchill announced the discovery of a coal resource containing approximately 2.73 billion tonnes of coal, making it the second largest undeveloped coal deposit in Indonesia and the seventh largest in the world. The deposit was assigned a pre-tax net present value of $1.8 billion.
Issues Develop
Following this positive news, the company was informed that the East Kutai Regency had granted an extension of Nusantara’s licenses over the same area. In early 2009, Nusantara made a report alleging criminal activity on Churchill’s part in the development of their Mining Authorities.
In addition to these accusations, the Ministry of Forestry in Jakarta alleged that Churchill was involved in illegal mining activities, citing a letter that was written by the leader of the Dayak Tribe, a group of locals near the mine site. The chief of the Dayak Tribe, however, noted that he never wrote such a letter and expressed support for Ridlatama, as they contributed to the local tribe generously.
The case was taken to an Indonesian tribunal, where the actions of the Bupati of East Kutai were upheld. Upon appeal, the actions against Churchill were again found to be lawful.
Concluding Words
Responding to this, Churchill appealed to higher powers in the government, saying:
“The clear abuse of process and discriminatory actions of the East Kutai Regency and certain Indonesian Government Ministries, as well as the highly questionable decisions of the Tribunal and the Administrative High Court in Jakarta, have been the focus of widespread attention in the mining industry in Indonesia and internationally…
Churchill requests, at the earliest convenience but without delay, an opportunity to speak with appropriate members of the Indonesian government who have the power to put an end to the unlawful and unjust actions being taken against Churchill and its investment in the Republic of Indonesia.”
References
↑ Churchill News Release
↑ Churchill Letter to Indonesian Government
