Churchill Mining : 31 March 2017 PDF Interim Report - December 2016

CHURCHILL MINING PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016 FILING OF ANNULMENT APPLICATION

The Directors of Churchill Mining PLC ("Churchill" or "the Company") are pleased to present the Company's unaudited interim results for the six months ended 31 December 2016 and to confirm that later today the Company will lodge an application to annul the ICSID Award of 6 December 2016. The Company will receive a temporary ("provisional") automatic stay of execution of the Award including the cost orders contained in it once the Application for Annulment is registered by ICSID. A further announcement will be made following the lodging of the application setting out the Company's grounds for making the application together with an update on the suspension position.

CHAIRMAN'S STATEMENT Introduction

During the half year, the Company continued actively to pursue its US$1.315 billion (plus interest) claim 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's ("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").

The consolidated Churchill/Planet arbitration is being conducted at the International Centre for Settlement of Investment Disputes ("ICSID").

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.

ICSID arbitration

The following significant events occurred during the 6-month period between 30 June 2016 and 31 December 2016 in regard to the ongoing ICSID arbitration.

Eleventh Hour Call for Further Submissions

After having deliberated for over a year the Tribunal, in a letter to the parties dated 9 September 2016, referred to the recent (2014) case of Minnotte v. Poland and invited the parties to comment on this decision and in particular to provide their views (on the basis of the existing factual record only) on paragraph 163 of the decision in connection with (i) the admissibility in international law of claims tainted by fraud or forgery where the alleged perpetrator is a third party; (ii) the lack of due care or

negligence of the investor to investigate the factual circumstances surrounding the making of an investment; and (iii) the deliberate "closing of eyes" to indications of serious misconduct or crime, or an unreasonable failure to perceive such indications.

The parties were directed to provide submissions based only on the evidence currently on the record and limited to 15 pages in response to the above questions by 23 September 2016 and Churchill filed its submission accordingly.

Whilst Churchill did comply with the Tribunal's last minute request for two further submissions, the Company also objected to the Tribunal (i) significantly expanding of the scope of the Document Authenticity phase at the eleventh hour, and (ii) directing that no new evidentiary or factual material be filed when responding to new issues that were clearly outside the scope of the Document Authenticity phase. The Company specifically put the Tribunal on notice that it had directed the parties to provide submissions on factual and legal issues that were well outside the intended scope of the Document Authenticity phase and that the volume and nature of these issues was such that they could only be properly briefed, investigated and determined in a full merits hearing.

As I have previously stated, Churchill believes the fundamental principle of international law that underlies paragraph 163 of the Minnotte decision is good faith. This explains why the Minnotte tribunal held that an investor's failure to make enquiries that might (or might not) have detected third- party wrongdoing does not automatically deprive that investor of treaty protection as an investor can fail to make such inquiries whilst still acting in good faith. This also explains why the Minnotte tribunal held that, if the proven facts clearly show that the investor did more than fail to make such inquiries, and instead deliberately closed its eyes to serious third-party criminal wrongdoing, that may vitiate the investor's claim because it may mean the investor was not acting in good faith.

Paragraph 163 of the Minnotte decision cannot however be viewed in isolation. Paragraphs 129 to 140 explain the basis on which the Minnotte tribunal reached the above conclusions.

In response to the factual aspects of the Tribunal's questions on Minnotte, Churchill made all the points it could, based on the existing evidentiary record of the proceedings (as per the limitations set by the Tribunal). One of the key points was that determining the level of due diligence is primarily a question of appropriate commercial benchmarks - "what would a reasonably prudent investor do in the circumstances?" Due diligence is also about reasonably foreseeable risks at the time an investment is made. The record shows firstly that Churchill conducted extensive due diligence including multiple legal reviews prior to and during the making of its investments and, secondly, that the risk that signatures on mining licences and related consents could be forged was not foreseeable throughout the process of applying for and obtaining the Ridlatama licences. Churchill noted that there was nothing on the record to suggest that forensic document authenticity testing was required at the time Churchill made its investment in East Kutai.

Further, Churchill emphasised the record shows that, far from closing its eyes to indications of serious misconduct or taking deliberate actions to avoid learning of such indications, Churchill actively pursued all challenges to its mining licences by instigating such actions as police investigations and fully supporting the investigations being undertaken by statutory government bodies such as BAWASDA.

The Award

On 7 December 2016, the ICSID Tribunal handed down its Award in relation to Indonesia's application for dismissal of the Company's claims based on forged Ridlatama mining licences.

In its Award the Tribunal granted Indonesia's application to dismiss the Company's claims for damages arising out of the revocation of the mining licenses that made up the EKCP in East Kalimantan Indonesia and made the following findings:

• Thirty four (34) disputed documents were held to be not authentic;

• The forger of the disputed documents was most likely a person or persons acting for or on behalf of Churchill's Indonesian partner the Ridlatama group in collusion with a person inside the East Kutai Regency;

• There was no finding that Churchill or its officers were involved in any forgery;

• Churchill's due diligence investigations conducted at the time of acquiring the East Kutai Coal licenses were insufficient;

• The claims brought by Churchill in this arbitration are dismissed; and

• Churchill is ordered to pay a total of USD 9,446,528 in costs and arbitration tribunal fees.

  Whilst accepting the finding that neither Churchill nor any of its officers were in any way involved in any fraud or forgery, the Company remains deeply troubled by many aspects of this Award.

  Events Post 31 December 2016

  The following significant events have occurred post 31 December 2016.

  Annulment Application

  The Company will today lodge an application to annul the ICSID Award of 6 December 2016. The Company will receive a temporary ("provisional") automatic stay of execution of the Award including the cost orders contained in it once the Application for Annulment is registered by ICSID. Whilst the Directors believe the annulment application has reasonable prospects of success, there can be no guarantee that the tribunal will grant a permanent stay of the adverse USD 9,446,528 costs order on terms satisfactory to the Company and subsequently grant a partial or full annulment of the ICSID Award.

  The Company's Application for Annulment of the ICSID Award will be available on the Company's website www.churchillmining.com

  Financial Summary

  The loss for the half year was $9,835,946 or 6.66c per ordinary share (half year Dec 2015:

  $1,858,975 or 1.39c per share and 12 months to June 2016: $3,151,287 or 2.27c per share). Other administrative expenses totalled $443,391 (Dec 2015: $1,909,428 and June 2016: $3,275,437).

  Significant expenditure items during the period include:

• Provision of $9,446,528 for the costs order following the ICSID award in December 2016;

   Legal and professional fees of $67,681 (Dec 2015: $1,005,219 and June 2016: $1,538,315) reflecting expenditure for the Company's arbitral claim against the Republic of Indonesia.

• Consulting, directors, staff and professional fees of $196,467 (Dec 2015: $598,434 and June 2016: $923,841).

The Group's Net cash from operating activities for the period ending 31 December 2016 with comparatives for the half year 31 December 2015 and 12 months to 30 June 2016 are summarised below:

31 Dec 2016	31 Dec 2015	30 June 2016
$'000	$'000	$'000

Unaudited	Unaudited	Audited
Net cash from operating activities	(614)	(1,839)	(3,058)

The Group's statement of financial position as at 31 December 2016 with comparatives at 31 December 2015 and 30 June 2016 are summarised below:

31 Dec 2016 31 Dec 2015 30 June 2016

$'000 $'000 $'000

Unaudited Unaudited Audited

Non-current assets	2	7	2
Current assets	870	1,371	1,527
Total assets	872	1,378	1,529
Current liabilities	9,573	831	453
Non-current liabilities	50	46	48
Total liabilities	9,623	877	501
Net assets	(8,751)	501	1,028

I would like to conclude by thanking our shareholders, my fellow Directors and our staff for their continued support and patience and can assure you the Board continues actively to seek a suitable outcome in the ICSID proceedings for shareholders.

David Quinlivan

Chairman

31 March 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 31 December 2016

6 months to 31 Dec 2016	6 months to 31 Dec 2015	Year ended 30 June 2016
Note	Unaudited	Unaudited	Audited
$'000	$'000	$'000
Other operating income	-	-	-
Provision for ICSID costs award	(9,447)	-	-
Other administrative expenses	(443)	(1,909)	(3,275)
Loss from operations	(9,890)	(1,909)	(3,275)
Total finance income	54	52	128
Total finance expense	-	(2)	(4)
Loss before taxation	(9,836)	(1,859)	(3,151)
Tax expense	-	-	-

Loss for the period/year attributable to equity shareholders of the parent (9,836) (1,859) (3,151)