Churchill has been embroiled in an international arbitration battle since 2012 with Indonesia over the licensing of the East Kalimantan coal project that is estimated by the firm to contain 2.73 billion tonnes of coal reserves.

The protracted battle comes at a time when Indonesia's government under President Joko Widodo has been trying to encourage more foreign investment to revive slowing growth in Southeast Asia's biggest economy.

A source familiar with the talks did not give details on negotiations but said there was an "open channel" between the mining firm and the government.

"Based on the talks that we're having, I'd be confident that there will be a settlement, but it's a question of what Churchill shareholders think will be the right amount," said the source, who declined to be identified because of the sensitivity of the situation.

The case revolves around the disputed ownership of the 350-square-km (135-square-mile) mine site in East Kutai, which the British miner says is worth around $1.5 billion.

The source said that while talks were ongoing, the legal or arbitration route would continue.

Churchill has spent more than $10 million on its legal bid after claiming that it had been unfairly stripped of its licences and accused of fraud.

A verdict in the arbitration case was previously expected in 2016, but the mining firm's shares have soared by 50 percent after it issued a statement last week saying Indonesia was no longer alleging it was involved in fraud.

Indonesia's attorney general's office could not be reached for comment on the issue and Churchill's Australian office did not immediately respond to a request for comment.

(Reporting by Michael Taylor; Editing by Ed Davies)