This is from someone that I invest with
and whom understands litigation stocks very well. Not legally qualified in
International Arbitration but an excellent investor. Information about Indonesia
I have supply. As a reminder, this is not an invite to buy, sell or make
financial decisions on information in this blog. It's merely my view
point...sad that caveats have to be applied to common-sense but required for
ones own protection.
It's quite hard
valuing 'litigation or Indonesian stocks'; you could pick a point on the CHL
chart below and argue any valuation in the past 3 years. Just look at BUMI Plc.
What exactly was their boardroom level investigation into 'cash issues' really
about? Was it a motivation to assert blame for the dire performance of the
company?? Or is Indonesia so corrupt even the majors find it hard to do
business there even with 'an alleged' good Indonesia Partner?
So from the price
movement, people (whether Institutional or Private Investors) believe CHL has a
value above the previous 2 years and is identical to what happened to
Oxus Plc (LSE: OXS) *(whom we
also have significant exposure from 0.7p). Volume is well up, so perhaps
people are understanding these stocks more. With Rurelec in the news, as well
as Oxus there's likely to be a knock on across similar types of
companies.
My view point in
valuation is; can the company show they had a 'legal right to own the asset.'
Contrary to the crap you read around Bulletin Boards, which are predominantly
by Trollers or over-exposed idiots, it's very simple. Did the company clearly
show they had a legal right to own, development and eventually operate the
asset(s)? Remembering, that in most foreign countries it's a Commercially
Operation Service agreement or similar. Whereby the asset or right to mine is
retained by the Government and not the company. The company (CHL) merely apply
to 'prove up the asset' (Exploration License or similar), then if feasible,
apply for a Mining License (Operation or Service License). You'll
note Churchill were exploring and not mining nor logging (as one court
Judge would have you believe).
It's my view,
Indonesia know they have done wrong and should have protected the rights of
Churchill Mining and related associates/parties. The Government has knowingly
tried to sweep it under the carpet, with a final attempt at 'gagging'
Churchill to stop informing 'others.' The reason being the Government of
Indonesia knew full well what damage they have done to their mining business;
with projects stalled, postponed or abandoned together. Australia Companies are
reminded regularly to 'be aware of the risks.' Similar in essence to the UK and
US contingent. Now why would you want 'Churchill Gagged'; they don't want
people knowing what the Indonesian Government have done? Surely not...
So to put it
simply (I am simple); Churchill Mining have lost their licenses despite there
being clear cut evidence to show they were entitled and legally the rightful
owners (albeit not 100% share). Churchill attempted to protect their 'rights to
these mining licenses in an Indonesian Court to licenses with clear cut
evidence but failed even on appeal.' The Government has allowed this to happen
and not protected the Investment of a Foreign Company's Rights to do business
(Key component of a BIT Claim). Now to add insult to injury, the Government of
Indonesia have allowed the licenses to be "given" back to the
Nusantra Group. This is despite there being clear evidence Nusantra
relinquished their right to the licenses previously...does it sound 'fishy' to
you?
Strange isn't it
that once Churchill Mining had found a 'vast' resource of Coal, that Nusantra
Group (and/or Subsidiary) suddenly 'starts protesting' that it was theirs
all along. They couldn't even evidence that they were appropriately proving up
a resource, had any intention of mining nor had legal right to the licenses. By
the actions of a few Indonesian's, Churchill had their licenses 'stolen' from
under their feet and now they've been re-awarded to an Indonesian's
Ex-Politician's Company, whom strangely is married to a daughter of a previous
president? So for me the proof is already there, albeit it's assumed...I
am sure CHL can show they had legal right to the licenses and as such the
Government should not have awarded to any other company, but protected in their
legal right to do business.
Valuation is a
tricky one, as I do not see $2B being paid but would be happier with say
$300-500 million (£200-£330 million $1.5 to £1 rate). The risk is 'if'
Churchill can't show they had a legal right to the licenses etc...which I the
legal Due Diligence at the very start of the case would have established; as
this is a primary part of a claim. So in assuming that 'legal are
well-qualified and good advice has been received' then going to International
Arbitration is the only way of asserting their legal rights for Churchill.
There are rumours
that Indonesia want to settle, figures hear are around $300 million but more
than likely it's the exposure in the papers whetting the appetite of
international arb risk takers. I envisage another spike upon Rurelec's (LSE:
RUR) settlement for the Nationalisation of the Combined Cycle Power Station in
Bolivia (a much simpler case that CHL's as the asset was developed, producing
and more importantly, the company was called back in after the Bolivian's blew
it up (not quite but damaged it). Likewise, Oxus isn't far off a ruling either!
I won’t be
discussing the "what if the Government doesn't pay the awarded
compensation" as the damage to the Country would be more significantly damaging
than the 'act of re-appropriation / re-allocation of Churchill's
Licenses.' The same with Rurelec and Oxus...likewise it’s clear what the
downside risk is…my view is £6-9M Market Cap as a shell company with tax
benefits.
Currently valued
today at £40M (Mkt Cap) or 32 pence a share...the longer time buyers should be
3-4 fold in profit with cream off the table after the last spike!
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