Churchill updates E. Kutai coal project
Thursday, October 27 2011 - 04:34 AM WIB
Chairman's Statement
I present Churchill Mining Plc's Full Year Report for the 12 months ended 30 June 2011.
I can best describe the past year as consisting of two distinct time periods separated by a very surprising decision by the Administrative Tribunal in Samarinda on 3 March 2011.
The year started out positively for Churchill with focus centred firmly on planning and progressing the more traditional project development aspects of the East Kutai Coal Project ("EKCP") mine, transport corridor and port facilities.
More critically however, the second part of the year saw the Company subjected to a frankly surprising negative ruling from the regional Samarinda Administrative Tribunal that sought to ratify the Bupati's improper unilateral decision to revoke the licenses in which Churchill has a 75% interest. Whilst the Samarinda Administrative Court decision remains a matter of record, the Company believes strongly that this court ruling was fatally flawed because it did not properly address (and in some cases did not address at all) a number of key issues raised during the hearing.
Whilst Churchill appealed this decision to the Administrative High Court in Jakarta (which dismissed this appeal) and has now appealed to the Indonesian Supreme Court and will continue to pursue all legal avenues available to it, the Company believes that the actions of the Bupati and the subsequent Administrative Court decisions have brought into serious question the ability of foreign companies to invest in long-term high value projects in Indonesia.
In accordance with International Financial Reporting Standards the Directors have impaired the full group carrying amount of the East Kutai Coal Project ("EKCP") of US$27.89 million at 30 June 2011. In addition the Company has impaired its subsidiary investment and intercompany receivables of US$47.12 million. The Company will however continue to vigorously pursue its claim for the full reinstatement of its rights in relation to the EKCP.
A more detailed summary of the legal proceedings is included in the Operating and Financial Review sections of this report.
In order to be best placed to defend the attempted encroachment of the EKCP, the Board and executive management of the Company have been restructured. Paul Mazak has stepped down as Managing Director and from the Board and for the time being I have taken on the day to day running of the Company as Executive Chairman.
The Company remains well funded with cash at bank of US$18.1 million at the date of this report to pursue the legal appeal process and continue its strategy to develop value with the EKCP, both for shareholders and the local Regency.
East Kutai Coal Project
It is relevant to highlight again that the EKCP has a JORC compliant Probable In-Situ reserve of 961 million tonnes of coal, forming part of the 2.73 billion tonnes JORC resource. Potential exists to expand this further and we believe this size and class of coal production will be extremely attractive to end-users of thermal coal, particularly in India and China.
Key achievements during the period on the EKCP included the completion of a 30 million tonne per Annum Feasibility Study, which confirmed the technical and economic feasibility of the Project. Additionally we purchased the land to be used as the site of the future port facility for the shipment of coal from the EKCP.
The Study conclusively underscores your Board's long-held view that EKCP is a world-class thermal coal deposit that is ideally positioned as a strategic asset for independent power producers across Asia, particularly power-hungry utilities in India and China.
Modelling by our technical experts proposes exploiting the EKCP deposit via open cut mining at a rate of 30 million tonnes per annum over an initial 25 year period. At current coal prices this would produce a pre-tax net cash flow in excess of US$500 million per annum over the first 20 years of capacity production. The Investment evaluation, modelled over an initial 25 year period, indicates a pre-tax net present value of US$1.8 billion (discount rate of 10%), internal rate of return of 21% and payback period of seven years.
In May 2011, the Company welcomed two new strategic Indonesian based shareholders with a private placement of ordinary shares to Rachmat Gobel and Ms. Fara Luwia, through a jointly-held company majority owned by Gobel. The placement raised more than ?7.7 million (approximately US$12.8 million) and brings to Churchill a significant Indonesian shareholder that has both the financial capacity and local presence necessary to help see the East Kutai Coal Project through its current legal challenges to the production phase. Following completion of the placement, Gobel and Luwia have both joined the Board of Churchill.
Gobel is the President Director and majority owner of PT Gobel International. PT Gobel International is a well-known and highly respected company with an impressive track record in partnering with international companies in Indonesia. Ms. Luwia is a successful Indonesian businesswoman who is currently developing one of the largest modern rice mills in Indonesia in partnership with a large global commodities trader based in Switzerland. We are delighted to have them both onboard.
In summary the Company remains committed to protecting its interest in the EKCP and seeking an appropriate remedy in relation to the EKCP license for its shareholders. On behalf of the Board I would like to thank you, our Shareholders, for your continued support and can assure you the Directors will continue to work diligently in the period ahead to reclaim the value inherently owed to Churchill.
I look forward to updating you on the Company's developments as we progress during the year. (end of excerpt)