Indonesian common-sense...(Churchill Value)

Indonesia has settled a potential ICSID dispute with a Japanese consortium by paying US$557 million to acquire control of a hydroelectric and aluminium project in Sumatra.

There's a lot of 'limited' news (work that out) coming from Indonesia (thanks Ian & Dave for the links; I've only published one to save space) that the Government is clearing up their International Arbitration issues and focusing on their 'new mining laws and policies.' 


The January deadline of 15th January 2012 is coming where Indonesia's ban on unprocessed ore exports comes into force, albeit they've relaxed the law now till 2017 with the exception of Nickel. With only 3 years extension, can the Country process all their ores by then? Not likely but at least its got more common-sense than the previous deadline that occurs 6 days. In the event there's no turnaround, Nickel could hit $20K a tonne or more, although its come off its end of December peaks. If so, Talvivaara (LSE: TALV) will become viable, who'd have thought it.
I envisage some backtracking by the Indonesia Government. To what degree? Who knows as they've realised that its not likely to work, but how many small miners will it put out of business in the process? Not exactly a vote winner and worse still there some 130 Nickel miner/producers in Indonesia and only two complaint that's a serious issue in itself if they all have to shut up shop. Common-sense says "surely" a Government wouldn't do that. Well they've been saying it since 2012, so why change now.

The backtracking is significantly last minute and as such the Rupiah has also been battered; as the earnings for Nickel will impact on Governmental earnings (Talk about shooting yourself in the foot). With only two companies in the Country processing Nickel, Pt Antam and Vale's Indonesian Subsidiary process their ore in Indonesia; it makes you wonder what the Government were thinking. Although once the Nickel issue is resolved (assuming it is) there's a potential short GBP Vs IDR (Indonesian Rupiah). 

So back to the positives for the 12 Japanese Consortium of Investors, it would appear that Indonesia have settled the dispute paying out for the controlling interests in hydroelectric and aluminium project (Sumatra); yes it was known back in November 2013 they had settled, but the value was unknown (Reuters Article). From what I can make out the Japanese stake for the Aluminium plant was valued at around $710M (+/-5%) so the settlement of $577M isn't a bad result for the Japanese Contingent. I'm unsure if its inclusive of costs. However, a bird in the hand...

How does this bode for Churchill Mining? Well, subject to jurisdictional issues/clarity, its likely Indonesia would be 'more' motivated to settle.' The one problem I see that will reoccur is that the CHL problems arose as a result of  "a dispute within the partnership." I eluded to it in an earlier post about the differentials, this does not mean they won't be successful but I believe the burden of proof is "that their rights have not be protected within the Indonesian Legal System as a result of fraudulent activity." 

If one was to consider the alignment of the Directors interests yesterday and the options (9th December 2013), I'm of the view the board believe their prospects are good. Cash conservation etc...but don't rule out a Third Party Funding Agreement or Fundraiser post the jurisdictional clarification. 

Will Indonesia pay up quickly? Depends on what the motivations are...even 10% of the amount claimed is a significant uplift in market cap but I don't foresee CHL settling at that level; if you have a case you may as well go to a level that there is a balance of risk/reward. It's certainly not a stock for the impatient!