Churchill Mining : 20 October 2016 PDF 2016 Final Results



19 October 2016

AIM: CHL CHURCHILL MINING PLC

("Churchill" or "the Company")

Full Year Results for the 12 Months ended 30 June 2016

Churchill Mining (AIM: CHL) reports its full year results for the 12 months ended 30 June 2016.

CHAIRMAN'S STATEMENT

Dear Shareholder

I present Churchill Mining Plc's ("Churchill" or the "Company") Full Year Report for the 12 months ended 30 June 2016.

Introduction

During the year the Company continued to actively pursue its claim - currently quantified at US$1.315 billion (plus interest from July 2014) - against the Republic of Indonesia ("Indonesia") for unlawful measures taken by Indonesia against Churchill's interests in the East Kutai Coal Project ("EKCP").

The unlawful measures taken by Indonesia include Indonesia's revocation (without justification, compensation or due process) of the mining licences that underpinned the EKCP (the "EKCP licences"), which were held by Churchill and its local partner in the project, the Ridlatama Group.

At the time the EKCP licences were illegally revoked, Churchill and its wholly-owned subsidiary Planet Mining Pty Ltd ("Planet") held a 75% interest in the EKCP. The area covered by the EKCP licences (i.e. the EKCP) contained a JORC Resource of 2.8 billion tonnes and incorporated a JORC Reserve of 980 million tonnes.

Churchill brings its claims against Indonesia under the United Kingdom-Indonesia Bilateral Investment Treaty (the "UK BIT"); Planet's claim - which is being run in consolidation with Churchill's case - is brought under the Australia-Indonesia Bilateral Investment Treaty (the "Australia BIT"). In the summary that follows, unless otherwise indicated, where I refer to Churchill or the Company I am also referring to Planet.

The consolidated Churchill/Planet arbitration is being conducted at the International Centre for Settlement of Investment Disputes ("ICSID"). The arbitral tribunal hearing the case comprises highly- credentialed arbitrators: Professor Gabrielle Kaufmann-Kohler (Chairperson) from Switzerland, Professor Albert Jan van den Berg from the Netherlands and Judge Michael Hwang SC from Singapore.

In legal terms, Churchill and Planet's causes of action are brought primarily under the expropriation and Fair and Equitable Treatment ("FET") provisions of the respective treaties.

I am pleased to report on developments in the ICSID arbitration both during the financial year and post

30 June 2016. These developments relate to Indonesia's Forgery Dismissal Application and the associated hearing, briefs and call for further submissions.

Developments in the ICSID arbitration during the year

1. Document Authenticity - Hearing

   Pursuant to ICSID Procedural Order 15, Indonesia's Forgery Dismissal Application was heard in Singapore between 3 and 10 August 2015. Churchill and Planet were represented by Clifford Chance LLP and Robert Richter QC with members of the Churchill board and management also in attendance at the hearing.

   The conduct of the hearing included fact witnesses, oral presentations and expert witnesses. All of the witnesses for Churchill whom Indonesia requested for cross-examination attended the hearing. With the exception of the very person responsible for the revocation of the Ridlatama mining licences in which Churchill held a 75% interest - former Regent of East Kutai, Mr Isran Noor - all of the witnesses for Indonesia whom Churchill requested for cross-examination attended the hearing.

   As the party that brought the Forgery Dismissal Application, Indonesia went into the August 2015 document authenticity hearing with a lot to prove. It was for Indonesia to:

2. firstly establish, with clear and convincing evidence, that the disputed mining licences were forged by Ridlatama (as alleged by Indonesia);

3. secondly then prove, again with clear and convincing evidence, the "massive, systematic and sophisticated scheme to defraud Indonesia" alleged in the Forgery Dismissal Application; and

4. finally address the legal consequences in the event that a finding of forgery were to be made.

   At the hearing the Company and its solicitors argued that the evidence contradicting the dismissal application was overwhelming. It is Churchill's view that Indonesia categorically failed step 1.) and barely attempted steps 2.) and 3.). The key points that lead Churchill to this view include:

   • Isran Noor - who Churchill considers to be a key figure in this dispute - refused to attend the hearing and as a result of his refusal to attend, the Tribunal formally excluded his evidence, effectively disposing of Indonesia's allegation that Mr Noor was "tricked" into hand signing the long-term (initial term of 20 years with options to extend for a further 20 years) Exploitation Licences.

   • the most senior of Indonesia's witnesses was evasive and repeatedly called for people including Mr Noor, his lawyer and his "friend" General Prabowo to answer questions about the events that took place;

   • a number of Indonesia's other witnesses freely acknowledged the existence of important documents that Indonesia refused to provide or earlier said either never existed or had been lost;

   • not one of Indonesia's witnesses gave any direct evidence that Ridlatama either:

     • owned or operated the device alleged to have been used in the application of the impugned signatures to the disputed documents; or more generally

     • engaged in acts of forgery or fraud.

   • no documentary evidence was introduced by Indonesia to show that the first of Ridlatama's mining licence applications - the General Survey licence applications - were rejected at this stage by a number of senior officials from the East Kutai Regency government. Further, these same senior officials admitted their direct involvement in the subsequent administration preceding the grant of the later exploration and exploitation phases of the East Kutai Coal Project licences;

   • both Indonesia and its witnesses conceded that if for the sake of argument the disputed documents were forged, the forging of these documents could only have occurred with assistance from an "insider" - the immediate legal consequence of which would be that Indonesia would be responsible for the criminal wrongdoing of its public officials;

   • evidence was introduced (supported by Indonesia's witnesses) that showed Nusantara did not have valid title to the EKCP area at the time Ridlatama was granted its general survey licences;

   • evidence was introduced that extensive survey, exploration and pre-development work was undertaken at the EKCP by Ridlatama / Churchill while complying with the East Kutai Regency and the Ministry of Energy and Mineral Resources ("MEMR") filing and payment requirements. Indonesia on the other hand failed to introduce any evidence that Nusantara performed any work or complied with any of its payment and reporting obligations between 2006 and July 2008, when Nusantara's exploration licences were extended or revised (unlawfully, in Churchill's view) by Mr Noor; and

   • evidence was introduced by Churchill (and corroborated by certain of Indonesia's witnesses) to show that the alleged "irregularities" on the Ridlatama licences and maps were not indicia of forgery as alleged by Indonesia but rather clerical errors indicative of the East Kutai Regency's lack of cohesive and consistent administrative processes at the time.

5. Document Authenticity - Post Hearing Brief

Following the August hearing the Tribunal issued Procedural Order 20. This order invited the Parties to file two post-hearing briefs (the second being a reply) to address all the matters which the Parties deemed appropriate to further their respective positions. Churchill and Indonesia each submitted their first-round briefs in October 2015.

In support of its case that both Ridlatama's general survey and exploration licences were authorised by the Regency, Churchill's first post-hearing submission consolidated the substantial body of evidence detailed in the Company's reply to Indonesia's forgery dismissal application with the overwhelming evidence presented at the August 2015 hearing.

One of the points that Churchill addressed in its first post-hearing submission was the following question: "how then does Churchill explain the conclusion of both parties' forensic experts that Mr Ishak's signatures on the Ridlatama General Survey and Explorations licences were not applied by his own hand?" Given all of the evidence presented, Churchill put forward two theories as to why the Regency might have applied signatures to the disputed documents using some kind of device, these being good faith authorization and bad faith authorization. Under either scenario the disputed documents were authorized by Indonesia with the difference being one solely of motive (ie whether the signatures were intended to be deniable at some later stage or not) on the part of the East Kutai Regency officials concerned.

Churchill believes the simplest explanation is that signatures were applied regularly in the East Kutai Regency with the full knowledge and consent of the party whose signature was being applied as a matter of administrative convenience. In other words the application of the signatures was authorized in good faith.

Alternately the Company considers that, if the disputed signatures were not applied in good faith as a matter of administrative convenience, but were rather applied using some kind of device as part of a design by Indonesia to make the disputed documents plausibly deniable, the application of the signatures was still authorized by Indonesia but was done in bad faith. In this scenario the disputed documents were designed by Indonesia to be flawed in a subtle but arguably fatal way so that, if commercially viable quantities of coal were found within the area of the EKCP, Indonesia could then deny it had ever issued the disputed documents.

Procedural Order 20 also included a number of specific questions that the members of the Tribunal invited the Parties to address in their first post hearing brief. The specific questions were:

• summary of positions, both factual and legal, with respect to adverse inferences.

• what are the consequences of disregarding Mr. Noor's evidence?

• what is the relevance of the official seals (chops) of the Regency, the provincial government, and the MEMR for purposes of the assessment of the authenticity?

• what is the evidence showing that the issuance of the impugned documents was authorized or not?

• subject to being within the scope of Procedural Order 15, in the event that the signatures on:

  • the survey and exploration licenses and/or

  • the re-enactment decrees and/or

  • the legality and cooperation letters and/or

  • the payment letters and/or

  • the borrow-for-use recommendation letters and/or

  • the borrow-for-use technical consideration letters

    are not handwritten or not authorized, what would be the legal consequences on each Party's case?

• if only the re-enactment decrees were found not to be handwritten or to be unauthorized, what would be the effect on the Claimants' case?

• if it were established that only Ridlatama engaged in forgery, what would be the effect on the Claimants' case?

• comments as a matter of fact and law, on the references to corruption and other improper payments, which certain witnesses made in the course of the hearing.

• what is the relevance of Nusantara's involvement?

• if the Tribunal were to come to the conclusion that the impugned documents are not authentic or not authorized, what issues would remain to be resolved in fact and law?

  Below I set out only the core points made in Churchill's response to the questions posed by the Tribunal above. However, I note that the Company provided the Tribunal with detailed submissions in response to each of its questions.

• By defying the Tribunal's orders to produce certain documents within its control, many of which its own witnesses confirmed do exist, Indonesia has firstly tried (unsuccessfully) to engineer the record in its favour and secondly denied Churchill the ability to fully test the serious allegations Indonesia has made. The documents Indonesia has refused to provide fall into a number of different classes including Regency Register Books, Comparator Mining Licences, Comparator Legality Letters and Cooperation Letters, Planology Office Maps, MEMR Maps, the spatial analysis of both Ridlatama and Nusantara's mining applications, Police Investigation Files and State Investigations into Mr Ishak and Mr Noor.

While the specific adverse inferences Churchill has asked the Tribunal to consider vary for each of the document classes, the broad principle underlying Churchill's requests for adverse inferences is that "if the document sought had been provided it would not have supported Indonesia's case".

A specific example is the adverse inference Churchill sought in regard to failure of Indonesia to provide the original East Kutai Regency Register Books: Churchill submitted that, if produced, these Register Books would not have supported Indonesia's allegations that (i) there were no entries in these Register Books regarding Ridlatama's General Survey and Exploration licences,

(ii) Ridlatama's Exploitation licences were processed in an irregular manner and (iii) Nusantara's application for extension of its Exploration licences was received at the time Indonesia claimed it was received.