Churchill Mining seeks $2 billion from Indonesia

JAKARTA Thu Apr 12, 2012 1:41pm BST

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JAKARTA (Reuters) - A small London-listed miner is heading to an international court of arbitration in May to fight for $2 billion compensation in a dispute over an Indonesian mine that has one of the world's biggest undeveloped coal reserves.

Last week, Indonesia's Supreme Court moved to reject an appeal by Churchill Mining Plc (CHLL.L), which has been fighting Indonesia's Nusantara Group for almost four years over the rights to develop coal reserves with a value that the company estimates at $3 billion.

"If nothing happens, we would proceed with lodging our application around the end of May," Churchill's executive chairman, David Quinlivan, told Reuters on Thursday when asked whether the matter would go to international arbitration.

"The arbitration would take place in a country that is neutral to Indonesia and Great Britain," said Quinlivan, whose company will seek 75 percent of the value of the asset, or about $2 billion.

"It will be against the sovereign nation of Indonesia, which allowed our licences to be revoked in what we say is an unfair and improper manner."

The 350-square-km (135-square-mile) mine site in East Kutai, a district in East Kalimantan province, is estimated to contain 2.8 billion tonnes of coal reserves.

Indonesia is the world's top thermal coal exporter, and its fast-growing mining sector accounts for about 12 percent of its gross domestic product. Demand for its coal comes in large part from China and India, which are expected to lift coal imports significantly over the next five years. Output will hit 390 million tonnes for 2012, industry groups say.

Churchill, which has a market cap of about $19 million and listed on the London Stock Exchange's AIM in 2005, also has a strategic holding in Spitfire Resources (SPI.AX), which is developing the South Woodie Woodie Manganese Project in Australia.

From late 2007 until early 2008, Churchill bought a 75 percent stake in Indonesian firm PT Ridlatama, which it says received four mining licences from the East Kutai government, and then spent about $50 million on the project.

This included buying surrounding land in preparation for the huge infrastructure investment needed for a project it hoped would last for decades.

But weeks after Churchill announced in May 2008 that the project could yield substantial coal, Nusantara Group, which originally held six licences in the disputed area, was awarded extensions to these licences, which Churchill believed had lapsed.

LEGAL BATTLES

A series of legal battles began. After a March 2011 tribunal ruling in Indonesia, Churchill and minority partner Ridlatama no longer own the East Kutai project.

Churchill filed an appeal on September 26 in Indonesia's Supreme Court and coupled that with lobbying efforts that involved Robert Gelbard, a former U.S. ambassador to Indonesia.

Despite diplomatic efforts through various embassies, the Indonesian Supreme Court moved to reject Churchill's appeal on April 3, sending the company's share price plummeting by as much as 39 percent.

"The lobbying will continue, and on the legal front we have a bilateral investment treaty between the Republic of Indonesia and the United Kingdom," Quinlivan said.

He added that Churchill would not look for other mining investments but instead would put all its focus into its claim on the East Kutai asset.

In the interview, Quinlivan repeated an earlier claim by Churchill that Nusantara Group is controlled by Prabowo Subianto. Prabowo, a possible presidential candidate, was a former head of the Kopassus special forces and was once married to one of former autocratic President Suharto's daughters.

Officials at Nusantara have not responded to repeated telephone calls and emails.

Indonesia surprised markets this year by announcing a raft of new regulations for the mining industry including export taxes, a ban on unprocessed metals exports and changes to rules on foreign ownership.

"There was a thing in today's newspaper about lots of Indonesians investing in London real estate," Quinlivan added. "What's happened to Churchill would be akin to somebody in the UK coming along and taking the title-deeds to all the houses that all the Indonesians have invested in London."

Churchill's plight has similarities with that of U.S. firm Karaha Bodas, which was awarded more than $300 million from state oil firm PT Pertamina in 2007 after a prolonged legal battle over the termination of a geothermal power plant project in the late 1990s.

Quinlivan advised foreign investors coming to Indonesia to "tread very carefully" and said he would "probably say no" to investing in the sector now, given recent developments.

(Editing by Matthew Bigg and Jane Baird)

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