Churchill issues loan notes to help finance annulment of ICSID ruling

By Romel S. Gurky

LSE-listed Churchill Mining Plc announced on Wednesday it has issued ?500,000 of secured convertible loan notes to Pala Investments Limited, the proceeds of which to be used for general working capital and to help meet the costs of its annulment application of a December 2016 ruling by the International Centre for Settlement of Investment Disputes (ICSID) in a coal dispute case with the Indonesian government.

Churchill said in a statement that prior to the issue of the loan notes, Pala is interested in 31,492,388 ordinary shares representing approximately 21.3 percent of the company?s issued share capital. Under the NEX Exchange Rules for Issuers, Pala is a related party of the Company.

?In consideration for the issue of the loan notes, Pala shall be entitled to receive a direct 25 percent interest in the proceeds of any outcome from the company?s ICSID claim against the Republic of Indonesia for the unlawful expropriation of the company?s East Kutai Coal Project,? Churchill said.

ICSID granted in December of last year Indonesian government's application to dismiss claims filed in 2014 by Churchill Mining Plc and its subsidiary Planet Mining Pty Ltd for damages arising out of the revocation of the mining licenses that made up the East Kutai Coal Project (EKCP) in East Kalimantan Province.

Churchill accused the Indonesian government of unlawfully revoking its mining license over the East Kutai coal project. But the Indonesian government accused Churchill of falsifying license documents of the East Kutai coal project. Churchill has been ordered by ICSID to also pay a total of US$ 9,446,528 in costs and arbitration tribunal fees.

But the company on March 31 lodged an application for an annulment of the ICSID tribunal ruling. As part of its annulment application, the company requested a stay of enforcement of the award.

Churchill said in the Wednesday update statement of the annulment application that under Procedural Order No. 1 dated July 14, 2017 issued by the ad hoc ICSID Committee to consider the company?s application for annulment of the award dated December 6, 2016 which is currently being pursued at the ICSID, the company is currently considering the Republic of Indonesia?s counter memorial on annulment, which was submitted on October 20, 2017. ?The company has until 22 December 2017 to file a reply and Indonesia then has until 28 February 2018 to file its Rejoinder on Annulment. The ad hoc Committee?s hearing on the company?s Annulment Application is expected not less than two months thereafter based on the timetable set out in the Procedural Order,? Churchill said.

In further details of the loan notes, the statement said that the loan notes are convertible at any time into ordinary shares of the company at a price of approximately 2.976p per share. Full conversion of the loan notes by Pala would result in the issue of 16,800,000 new ordinary shares and would increase Pala?s shareholding to 48,292,388 ordinary shares, representing 29.3 percent of the company?s current issued share capital as enlarged by full conversion of the loan notes.

The loan notes are being issued under the Directors' existing authorities granted at the 2016 Annual General Meeting. The coupon rate for the loan notes will be 10 percent per annum and interest will accrue daily (until repayment or conversion) and will be capitalized annually. Interest shall be payable in cash upon repayment or conversion of the loan notes.

Pala (or its nominee) will be entitled to require the appointment of one director to the company's board at any time that any portion of the loan notes remains outstanding or for so long that Pala holds not less than 10 percent of the issued shares of the company. Pala will consult with the company prior to making any nomination and acknowledges that the company will be required to consult with its Corporate Adviser under the NEX Exchange Rules for Issuers in respect of any appointments. Pala currently does not intend to exercise this director nomination right.

Churchill Chairman David Quinlivan said ?the company is pleased to continue to enjoy the support from its major shareholder Pala Investments Limited as we seek recovery of value for shareholders by progressing the annulment application of the adverse December 2016 ICSID award?.

Editing by Reiner Simanjuntak