Churchill Mining plc Jurisdiction Hearing Update

Churchill Mining plc Jurisdiction Hearing Update Investegate May 24, 2013

No surprises really, if you look at the jurisdictional challenges of other cases, there seems to be some consistency between 2-4 weeks longest was some 4 months. There was mention of one in a previously of a recent dispute over Jurisdiction [an oil company I think]  however age is not becoming of memory; will endeavour to repost the link at some point.

Some items asked to be reposted [its hoped a fact sheet can be created to down of all these]:

Jurisdiction and powers of arbitral tribunals: who decides?
Dundee University 

Australian BIT Agreement with Indonesia

Churchill Mining and Planet Mining Pty Ltd, formerly ARB/12/14 v. Republic of Indonesia (ICSID Case No. ARB/12/14 and 12/40)

Addition [Edited 10:17] Churchill Mining – How patient are the bulls? Surely patience is required on any International Arbitration Claim; when they last on average 3 years 6 months...is it a rush today. However, as the position was opened without full knowledge of the facts and misinformation  could there be risk of 'the short going against the holder.' For the shorters, I do hope the legal set that specialise in these cases do not start trawling for stock! Risks either way, thats why it pays to buy over significant time...not take a very myopic view...which 'may or may not be right.'

Article & the tune changing [a little bit].

The article below was emailed to us by D, Many Thanks

By Lucian Miers — Wednesday 22 May 2013

Lucien Mi am afraid that Zak Mir, Lucky Shares and all the Bulletin Board Morons have got Churchill Mining badly wrong. I am short and at 27-29p that is the only sensible call.

The bulls argue that Churchill is in court right now trying to get $1 billion from the Indonesian Government which, it claims, stole a prize mining asset. Indeed on Tuesday a case was heard at ICID in Singapore.

But the case heard was merely to determine if the ICID (International Centre for Investment Disputes) has the right to arbitrate in this matter – not to award judgement. The idea that somehow a big cheque is on its way to Churchill imminently is just wrong.

If the ICID says it cannot arbitrate then Churchill is stumped. At 28p it is capitalised at £30 million and has cash of c£6 million. So the shares could plunge 80%.

If the ICID says it can arbitrate then in a best case scenario the case will not be settled for two years. Churchill shares may go to 50p but as folks get bored, worry that Churchill will in the end lose, the stock will drift lower as shareholders cash is spent on expensive lawyers and PLC costs. Either way I am happy to stay short.

- See more at: Share Prophets & Churchill Mining Article

Viewpoints...

1) as pointed out in a previous post, Lucian stated he was short at 20 pence? Or wasn't this the case? So now the sensible call is 27-29p. 

Surely you'd be binary betting on a short position and Jurisdictional Issues are more positive for CHL than Negative. Or are parties believing/suggesting that Churchill's claim is frivolous, its initially inferred its got no value but now the hope is people will get 'bored' of the company? This doesn't mean there is no risk, but there doesn't appear to be a grasp of the basis of their [Churchill's] claim [read as basics], or what happens during the process or the possible risks including takeover post Jurisdictional Clarification (if positive). 

2) There is a belief that investors have a view that the 'two day hearing' clearly describing the jurisdictional timetable and issues raised by Indonesia was in fact a ruling or hopes you believe others think it.  Can any reader please message (it wont be published & is anonymous) if they believe that CHL have gained a settlement from the 'two day hearing'. I'd be interested to read their views and reasoning...albeit its felt its rather premature to consider a settlement.

3) Ironically the mention of a big cheque - Indonesia's Mining Public Relations and Overseas Investment issues may benefit from a quick settlement but of course they wont be doing that if they can prove their is no jurisdiction. [Common-Sense]

4) Shareholders cash is spent on expensive lawyers and PLC costs? Post jurisdiction there's a high possibility of Third Party litigation Funding being utilised which would remove upside and costs for shareholders but also enables a nice slice of the pie for shareholders pending a positive outcome.

Thought provoking...but showing little comprehension of the issues albeit that doesn't mean the position is flawed just the understanding.

Liquidity on International Arbitration PLC OXS, CHL,RUR

The liquidity (or lack of) in International Arbitration companies; Oxus Plc, Churchill Mining and Rurelec must now be at an all time low. Dipping the toe in for more in Oxus [May 21,13] created a spike and it shows the dangers for trawling for stock rather than buying over the time-frames of the arb claim.

Those that have actively managed their holdings should have paid significantly less on average with a decent position including derisked amounts along the way. Seems the CFD availability is limited to around 0.24% for Oxus currently and 0.95% Churchill (of issued stock)

There has been a number of questions regarding how to rate International Arbitration stocks in terms of likely settlement. I'll perhaps discuss this in greater depth on a plane whilst affording myself the luxury of a short break.

Ones to watch are those with possible International Arbitration issues or similar type risks such as Centamin Egypt (LSE: CEY) and Circle Oil (LSE: COP) due to the Egyptian issues; in the event of expropriation of assets it could prove very opportunistic as the panicked / leveraged sellers are forced to close positions in the event of news. CEY is one certainly to follow as things progress in light of their 'mining license' issues which are currently being disputed scheduled for a hearing on June 19, 2013 Egyptian Legal Proceedings Update (Investegate RNS Egyptian Legal Proceedings Update May 10, 2013)

Rumours: Jurisidiction

Market rumours today "that it was found that the International Arbitration Panel does have jurisdiction to hear Churchill Mining's case.' Albeit the caveat is the same chap that told me this, said Rurelec "wouldn't be nationalised.' However, common-sense states if Churchill Mining's rights have not been protected in the Republic of Indonesia, then the only port of call is International Arbitration.

Time will tell, albeit if Indonesia do similar to Oxus Plc, then Churchill Employees will be wanting/needing to leave the Country. The Jakarta Tribune Jakarta Tribune is already quoting an Indonesian Minister for the 'criminal investigations against Churchill Mining Employees relating to forged documents.' So it's more than likely other tactics of intimidation are utilised of the court of proceedings.

THE MINING LAW REVIEW - MINING LAW - UZBEKISTAN (Old Paper Published November 2012)

Avent THE MINING LAW REVIEW - MINING LAW - UZBEKISTAN

For those interested, page 14 onwards, otherwise read all to give a basic understanding...

What do the Oxus Plc Preliminary Results mean for the International Arbitration Investors

Oxus Plc Preliminary Results (Investegate) Link May 17 2013

Interesting analysis of the results by Richard Shead Executive Chairman. An update will come after a few meetings, but it's thought provoking? Anyone have any startling concerns or views? 

Updated: May 19th 2013 Items in Italics or blue are amended for ease of viewpoint or to bring attention to the issues with greater significance. 

Of course, there risks are that they don't recover above what the current valuation is post-3rd Party Funding and the amount of SEDA (Standby Equity Agreement) that's issued, albeit I as the assets have been expropriated it's a case of how much rather than losing. It's more realistic to expect near $150m than the claimed total after but only time will tell. 

SEDA's for those that follow, are known to trash the shares, likewise, the company can open short positions on the stock to improve their position in terms of the number of share per cash raised. One bone of contention that, if you look at every company on AIM excluding Xcite Energy to my knowledge has had their share price trashed as a result of a SEDA. 

CHAIRMAN'S STATEMENT

What’s only mentioned in the contingent Assets is the Jero0y Project. In May, Eurogold settled their lawsuit for A$7m in cash and shares, so that particular Damoclean sword no longer hangs over directors.  Additionally, in 2007 the old Jerooy property and a couple of other exploration properties in Turkey and Romania were sold to KazakhGold for $73m in shares, 90% of which it handed over to shareholders as a dividend.  A further amount up to $80m in cash will become due if KazakhGold obtains a mining license for Jerooy.  Arbitration with Kyrgyz Republic suspended pending withdrawal of claim May 6th, 2008

Most of last year was spent by directors and management in progressing the arbitration claim for the misappropriation by the Uzbek Government of both the Company's Khandiza and Amantaytau Goldfields mining assets in Uzbekistan, which resulted in a substantial destruction of shareholder value of your company.

In order to ensure that your company remains adequately funded to pursue its claims through international arbitration, it successfully put in place both a litigation funding agreement, which ensures that the legal costs of the claim will be funded through to its conclusion, and an equity funding agreement to ensure that your company's ongoing operational costs, which have as in the previous year been again reduced wherever possible, will remain funded during this most difficult period in the life of your company. Details of both these funding arrangements have been fully disclosed in various RNSs issued during the past twelve months. [I don’t see the purpose in the SEDA (Standby Equity Agreement) surely those shareholders now invested would support a fund raiser which would then enable the company not to drip feed to market and support the price]

It gives me great confidence that two professional companies well versed in litigation funding and value creation have, after reviewing Oxus' claims, taken the decision to provide the Company with the financial support necessary to progress these claims to what I confidently believe will be a successful conclusion for all stakeholders. [They owned an asset and this was expropriated by the Uzbekistan Government so it’s value rather than win or lose.]

With respect to the abuses suffered by certain of our former employees, I wish I was able to provide more positive news.

Mr Said Ashurov, AGF's former Chief Metallurgist, remains in prison in Uzbekistan on what the company considers to be an unjust and improper conviction for seeking to remove classified information from the country, despite high-level approaches made to the Uzbek authorities through diplomatic and other formal lines of communication. We continue to remain hopeful that Uzbekistan will on humanitarian grounds release Mr Said Ashurov, who I understand is critically ill, into the care of his family. [Rather says why people shouldn’t invest in Uzbekistan]

A number of other former employees have also had arrest warrants issued against them on what we consider are fabricated charges. It is regrettable that the arrest and / or imprisonment of employees is a standard tactic adopted by the Uzbek Government in its various disputes with foreign investors in the expectation that the investor will capitulate and not progress its claim for compensation.

Despite these pressures, your company remains willing to consider offers from the Uzbek Government to settle our claims on a fair and equitable basis taking into account the independent valuations of the assets misappropriated. If no such offer is received, your company will continue with its claims which are currently scheduled to be heard before the arbitral tribunal in early 2014. [Gives a timeframe to work to for investment purposes but remember a Director (incorrect and edited) Mr A F Gibbons has recently purchased 32,241,600 ordinaryshares in Oxus Gold, which represents 7.22% of the issued share capital of theCompany. & Director Richard Shead Share Purchase

                                                                                                                                                                               

In conclusion I would like to thank my fellow director, management, staff and professional advisors for all their hard work and support during the past twelve months, which will hopefully lead to the enhancement of shareholder value in the foreseeable future.    

Richard Shead

Executive Chairman

16 May 2013

FINANCIAL REVIEW

During the year ended 31 December 2012 management has continued to pursue the arbitration proceedings seeking compensation for the Group in respect of the Amantaytau Goldfields ("AGF") and Khandiza mining assets in Uzbekistan. There are no other operating activities currently being undertaken by the Group. The Company's ability to continue with the arbitration process has been significantly strengthened through the further reorganisation of the Group's liabilities through entering into a litigation funding agreement and equity financing agreement.

For the years ended 31 December 2012 and 2011 the Group has accounted for the investment in AGF as an available-for-sale financial asset under IAS 39 Financial Instruments: Recognition and Management, recognising the loss of joint control of the investment. Although the outcome of the arbitration proceedings is uncertain, compensation sought from the proceedings exceeds the book value of the AGF and Khandiza assets. Accordingly no provision is considered necessary against the carrying value of the AGF investment. The carrying value of Khandiza, which was fully provided against in 2008, was reinstated during the year ended 31 December 2011.

In January 2011 the Uzbek shareholders in AGF agreed in principle to acquire the Group's 50% shareholding in AGF. In February 2011 the Group submitted a detailed offer to the Uzbek shareholders of AGF. No response has been received to the offer and instead AGF was subjected to an extensive audit of its financial and economic activities by an audit commission appointed by the Uzbek Government. This resulted in the Group becoming unable to manage the operational affairs of AGF and a declaration of force majeure in March 2011. On 31 August 2011 the Group commenced international UNCITRAL arbitration proceedings against the Uzbek Government in order to seek appropriate compensation. The Group has also included the loss of the Khandiza base metals project in 2006 within the proceedings. The Arbitral Tribunal has held that Oxus has standing under the Bilateral Investment Treaty between the United Kingdom and Uzbekistan to bring its claims for expropriation as a direct and indirect shareholder of the non-UK subsidiaries that have made the investments in Uzbekistan.

On 17 September 2012 the Group submitted its detailed Statement of Claim to the Arbitral Tribunal.

The Statement of Claim is accompanied by an independent quantum report prepared by the international accounting firm, Ernst & Young, and an expert opinion on valuation by international mineral consultants, Wardell Armstrong International, quantifying the losses to Oxus as a result of various breaches of the BIT by the Uzbek Government. The loss in respect of the Khandiza investment is quantified as ranging from $72.1 million to $588.7 million, and in respect of AGF from $480.3 million to $661.8 million.

The Ministry of Finance of the Republic of Uzbekistan brought a claim of $10.8 million against the Company in respect of the AGF Phase 2 Project Development Fund and obtained a judgment in its favour in the Uzbek courts, which it sought to enforce in the English courts. The parties have now agreed that all proceedings in respect of this court action will be stayed until after the Arbitral Tribunal has rendered its final award in the arbitration proceedings, or the arbitration is finally discontinued or disposed of.

Since March 2011 the Group's access to the accounting records, financial information and production data of AGF has been severely restricted. In September 2012 insolvency proceedings were commenced against AGF following a decision by the Navoi Regional Economic Court of Uzbekistan. The Group, despite being AGF's largest creditor, was not appropriately consulted during these insolvency proceedings and in February 2013 AGF was declared bankrupt by the Navoi Regional Economic Court. The declaration of bankruptcy is not expected to negatively impact the arbitration proceedings.

Lawsuit seeks Criminal Investigation on Churchill Mining for Falsifying Evidence (My view is the man's deluded but perhaps intimidating??)

Lawsuit Seeks Criminal GOI on Churchill Lawsuit Seeks Criminal Investigation on Churchill Mining Tribune Article May 15, 2013

Another translated via a friend. In essence I believe they're trying to intimidate Churchill Mining.

TRIBUNNEWS.COM, JAKARTA - The Indonesian government will criminally investigate and probe evidence/documents that has been allegedly falsified Churchill Mining Group. This step will be a separate to the legal process of arbitration at the International Center for Settlement of Investment Disputes (ICSID).

This was said by the Regent of East Kutai, Isran Noor, in Jakarta, after following a series of hearings Arbitration in Singapore on Tuesday (14/05/2013) night. Isran confirmed it is exploring the criminal legal action.

"They, the plaintiff [Churchill Mining and Planet Mining], consider this case worthy to be brought to ICSID arbitration. Though it is unreasonable; Tribunal itself is of the opinion that the plaintiff delivered a lot of things that are not in accordance with reality. Examples Including bilateral relations that have nothing to do with this case. Almost like comparing Netherlands to Senegal, then Netherlands also with the Philippines, "said Isran.

Isran explains, from in-depth review of the results by the legal team of the Government of Indonesia, indicated most of the documents are falsified by the plaintiff [Churchill Mining and Planet Mining] and its subsidiaries (the group members). This includes thesignature permitting mining activities in the district.

"They [Churchill Mining and Planet Mining] then asked in the arbitration forum, why if this is truly a forgery, was not brought into the criminal realm. I reiterate, that revocation of Ridlatama Group as an administrative sanction has been very giving lessons and a tremendous pressure," said Isran. 

"But when they're ready, we'll bring this issue to the point of criminal law. We just do not want to move currently as it is regarded as criminal intimidation whilst the arbitration process is running. But if they continue to sell it, we will buy it. If they sell a fish, we will buy it, "he added. [Are Churchill & Planet a Fishing Company????]

Isran given administrative sanctions assert a form of East Kutai regency humanitarian approach in the investment sphere. Because the Ridlatama already suffered huge financial losses upon revocation of the IUP.

"Ridlatama Group is partnering does not fit the rules. Breaking laws because they do not report the cooperation with the local government," he said. With the recent developments, the defendant will wait and see the next steps of the plaintiff.

"For now we still wait and see. We are optimistic that we are in the correct position. Tribunal have also heard directly from other parties the revelation they [Churchill Mining and Planet Mining] are now carrying the alleged falsification of documents into the realm of law. We will explore the criminal action, but we do not want this to be assessed as intimidation of the arbitration process, "he said.

Isran confirmed legal proceedings will be interpreted as a step to keep the government's National Pride. "We want investment in Indonesia to go well. This is not to discourage investment. However it is to provide legal certainty for investors, both domestic and abroad," he said.