United Kingdom. Indonesian Subsidiary Office. 55 Baker Street London W1U 7EU. 131 Finsbury Pavement

Transcription

1 2012 A n n u a l R e p o r t

2 Directors Solicitors David Quinlivan Ronaldsons LLP Nicholas Smith 55 Gower Street Gregory Radke London WC1E 6HQ Fara Luwia United Kingdom Rachmat Gobel John Nagulendran Registered Office Faroek Basrewan 55 Gower Street London WC1E 6 HQ Company Secretaries United Kingdom Stephen Ronaldson Russell Hardwick Brokers Northland Capital Partners Registrar 60 Gresham Street Share Registrars Ltd London EC2V 7BB Suite E, First Floor United Kingdom 9 Lion and Lamb Yard Farnham, Surrey GU9 7LL Indonesian Subsidiary Office United Kingdom Wisma Kosgoro Building 18th Floor, Jl M H Thamrin 53 Bankers Jakarta Pusat HSBC Bank Plc Republic of Indonesia 94 Kensington High Street London W8 4SH Auditors United Kingdom BDO LLP 55 Baker Street Australian Office London W1U 7EU Suite 1, 346 Barker Road United Kingdom Subiaco WA 6008 Australia Public & Investor Relations Tavistock Communications Nominated Adviser 131 Finsbury Pavement Northland Capital Partners London EC2A 1NT 60 Gresham Street United Kingdom London EC2V 7BB United Kingdom Kreab Gavin Anderson Inc 515 Madison Avenue 18th Floor New York United States of America

3 Chairman s Statement 3 Review of Operations and Finance 5 Board of Directors 9 Directors Report 12 Corporate Governance Statement 20 Statement of Directors Responsibilities 22 Independent Auditor s Report to the Members of Churchill Mining Plc 23 Consolidated Statement of Comprehensive Income 25 Statements of Financial Position 26 Statement of Changes in Equity 27 Statement of Cash Flows 29 Notes to the Financial Statements 30

4 CHAIRMAN S STATEMENT Dear Shareholder, I present Churchill Mining Plc s ( Churchill or the Company ) Full Year Report for the 12 months ended 30 June Over the course of the last 12 months, the Company has continued to actively protect its interest in the East Kutai Coal Project ( EKCP ) following the negative ruling from the Samarinda Administrative Tribunal wherein Churchill sought to overturn the East Kutai Regent s ( Bupati s ) decision to revoke the EKCP licenses. Churchill's appeal of this decision to both the Administrative High Court in Jakarta and the Supreme Court of Indonesia was unsuccessful. The Company believes that the actions of the Bupati and the subsequent Indonesian Court decisions have brought into serious question the ability of foreign companies to invest in long-term, high value projects in Indonesia. During the year, the Company made several attempts to resolve the matter directly with the Government of Indonesia. In November 2011 and again in April 2012, the Company wrote formally to the President of the Republic of Indonesia requesting support in reaching an amicable solution. The Company did not receive any response from the President and has experienced a lack of support at all levels of the Government of Indonesia with regard to Churchill s contentions on the treatment of its investment in the EKCP. International Arbitration against the Republic of Indonesia Churchill filed for international arbitration against the Republic of Indonesia for breaches of Indonesia s obligations under the Bilateral Investment Treaty between the United Kingdom and the Republic of Indonesia (the "UK-Indonesia BIT"). The claim was filed on 22 May 2012 at the International Centre for Settlement of Investment Disputes ("ICSID") in Washington D.C. In the ICSID arbitration, Churchill is seeking the full relief owed to it under the provisions of the UK-Indonesia BIT and under international law. The Company looks forward to now addressing and rectifying these issues on the independent platform that international arbitration at ICSID provides. In light of the on-going EKCP dispute and the international arbitration, further additions to the Board have been made. In May 2012, Mr John Nagulendran joined the Board as a Non-Executive Director and in September 2012 the Board also appointed Mr Nicholas Smith as Managing Director. Both Mr Nagulendran and Mr Smith bring with them extensive experience in advising companies in the complexities of international law. Mr Nagulendran was previously a practicing lawyer at international law firm Herbert Smith LLP where he specialised in the natural resources sector. Similarly, Mr Smith has more than 30 years experience in the international resource and resource development industry, including significant experience in project management of major international litigation and arbitration disputes. We are very pleased to have both of them as part of the Board and their skillsets will be invaluable as the Company progresses its claims in ICSID arbitration against the Republic of Indonesia. The ICSID arbitration has in effect become Churchill s principal activity and focus for the Company going forward, and the Board remains committed to pursuing an appropriate remedy and restoring value for its shareholders. CHURCHILL MINING PLC 3 ANNUAL REPORT 2012

5 CHAIRMAN S STATEMENT On behalf of the Board, I would like to thank shareholders for their continued support and we will continue to update shareholders on the progress during the course of the year. David Quinlivan Executive Chairman 24 October 2012 CHURCHILL MINING PLC 4 ANNUAL REPORT 2012

6 REVIEW OF OPERATIONS AND FINANCE COMPANY BACKGROUND AND STRATEGY Churchill Mining Plc ( Churchill or the Company ) was listed on AIM in April Churchill s growth path accelerated following the discovery of a world-class thermal coal deposit at the East Kutai Coal Project ( EKCP ) in the East Kutai Regency of Kalimantan, Indonesia, through an intensive and targeted exploration program. Churchill had taken the EKCP through to feasibility in readiness for funding and the commencement of construction. The Company and its Indonesian partners, the Ridlatama Group ("Ridlatama"), were then subject to a negative ruling from the Samarinda Administrative Tribunal that confirmed the East Kutai Regent s ( Bupati s ) previous decision to revoke the EKCP licenses. Churchill and Ridlatama appealed the Samarinda Administrative Tribunal's decision to the Administrative High Court in Jakarta and the Supreme Court of Indonesia but were unsuccessful in both avenues of appeal. Churchill has subsequently filed international arbitration proceedings against the Republic of Indonesia at the International Centre for Settlement of Investment Disputes ("ICSID") for breaches of Indonesia s obligations under the Bilateral Investment Treaty between the United Kingdom and the Republic of Indonesia (the "UK-Indonesia BIT"). EAST KUTAI COAL PROJECT Churchill continues to believe the EKCP is a highly strategic asset, ideally located both in relation to core energy consuming markets, and in the context of rising demand for energy resources such as high quality thermal coal. The completion of the EKCP Feasibility Study in September 2010 confirmed the technical and economic feasibility of the project. The investment evaluation, modelled over an initial 25-year period, indicated that the project has a pre-tax net present value of US$1.8 billion, an internal rate of return of 21% and a payback period of seven years. The September 2010 Feasibility Study demonstrates that the EKCP is a world-class thermal coal deposit which is ideally positioned to supply the growing energy needs from China and India, as well as Indonesia. In January 2011, Churchill completed the purchase of the land to be used as the site of the future port facility for the shipment of coal from the EKCP. In conjunction with this purchase, Churchill received sign-off on the port site from the Indonesian Department of Transportation, thus initiating the land acquisition process in cooperation with the local community and relevant Indonesian Government departments. The location of the port facility is a key component for the direct access of exporting thermal coal to the international markets. EKCP Licenses On 3 March 2011, the local Samarinda Administrative Tribunal issued a decision against Churchill and its Indonesian partner Ridlatama, finding that the Bupati s attempted cancellation of the EKCP licenses did not contravene administrative regulations. The Company and Ridlatama rejected the decision of the Samarinda Administrative Tribunal and lodged an appeal to the Administrative High Court in Jakarta. On 19 August 2011, the Company was advised that this appeal had been dismissed and that the Administrative High Court had upheld the decision of the Samarinda Administrative Tribunal. The Company and Ridlatama immediately moved to file notice of appeal to the Supreme Court of Indonesia, with a subsequent filing of Memoranda of appeal on the 26 September In April 2012, Churchill was advised that notations on the Indonesian Supreme Court's register of cases showed the Supreme Court had rejected the appeal by Churchill and Ridlatama. In June 2012, the written decisions confirming the rejections of the appeal were delivered to the Samarinda Administrative Tribunal and notified to Churchill and Ridlatama. CHURCHILL MINING PLC 5 ANNUAL REPORT 2012

7 REVIEW OF OPERATIONS AND FINANCE As noted in the Chairman s Statement, the Company has made several approaches to the Indonesian Government seeking an amicable solution. The Company has not received any support from the Indonesian Government and was left with no alternative than to commence international arbitration proceedings at ICSID against the Republic of Indonesia pursuant to the UK-Indonesia BIT. Due to the actions of the Bupati, and the negative decisions by the Indonesian Courts, the activities at the EKCP site were suspended. This has resulted in a loss of local employment and community development projects. While the East Kutai population has continued to strongly support Churchill s endeavors to maintain and develop the EKCP, the actions of the Indonesian Government have had a negative economic impact on the economy of East Kutai and East Kalimantan. Churchill has had to reduce its corporate and administration overheads within Indonesia, which is in line with turning its focus to the international arbitration proceedings at ICSID. FILING OF INTERNATIONAL ARBITRATION CLAIM On 22 May 2012, Churchill filed its Request for Arbitration at ICSID against the Republic of Indonesia for breaches of Indonesia s obligations under the UK-Indonesia BIT. In the ICSID arbitration, Churchill is seeking the full relief owed to it under the provisions of the UK-Indonesia BIT and under international law. On 22 June 2012, ICSID notified the parties that Churchill s Request for Arbitration had been registered at ICSID. The Company is now focused on the ICSID arbitration and will be pursuing an appropriate remedy and restoring value for its shareholders. The Company has also moved to strengthen its management team to assist with the ICSID arbitration, with Mr John Nagulendran and Mr Nicholas Smith joining the Board of the Company. Both appointees bring extensive experience in international law, international arbitration and litigation project management to the Company. During October 2012 the constitution of the arbitral panel was finalised at ICSID that will hear Churchill s international arbitration claim against the Republic of Indonesia. Now that the ICSID arbitral panel is formally constituted, the next phase of the international arbitration, namely the investigation and determination of the merits of Churchill s claim will proceed. Churchill s 100% owned Australian subsidiary Planet Mining Pty Ltd Planet (which via its 5% shareholding in PT Indonesia Coal Development held an interest in the East Kutai Coal Project), has through its attorneys recently written to His Excellency the President of Indonesia stating that the expropriation of its interest in the East Kutai Coal Project breached Planet s rights under the Australia- Indonesia Bilateral Investment Treaty. In the absence of there being an amicable resolution to this Planet/Republic of Indonesia dispute, Planet will file its own Request for Arbitration before ICSID, pursuant to the Australia-Indonesia Bilateral Investment Treaty. RIDLATAMA GROUP In July 2011, the Company s Indonesian subsidiary PT Indonesia Coal Development ( ICD ) delivered a notice of dispute to its Indonesian minority partner, Ridlatama, as well as several individuals related to Ridlatama, with regards to the EKCP. ICD subsequently commenced arbitration proceedings in Singapore under the rules of the International Chamber of Commerce, against other members of Ridlatama who are parties to the investor s agreements, for their alleged breaches of the said agreements. A hearing has been held on jurisdictional objections with the tribunal issuing its interim award finding in favour of ICD and dismissing Ridlatama's preliminary jurisdiction challenge. CHURCHILL MINING PLC 6 ANNUAL REPORT 2012

8 REVIEW OF OPERATIONS AND FINANCE ICD has also filed an unlawful act claim against Mr Andreas Rinaldi, one of the controllers of Ridlatama in the Tangerang District Court in Jakarta. Both ICD (the Claimant) and Mr Rinaldi (the Defendant) were in agreement that the parties before the Court were incomplete. ICD asked the Court to dismiss the claim on that basis. The District Court decided to dismiss ICD's claim against Rinaldi in its entirety on the grounds that ICD did not submit any evidence to support its claim, and not that the parties were incomplete. ICD unsuccessfully appealed the District Court's decision to the High Court in Jakarta and has submitted a further appeal to the Supreme Court of the Republic of Indonesia, the decision of which is pending. During September 2011, the Company filed an application seeking a court order for a shareholders meeting to be called for PT Ridlatama Tambang Mineral (75% indirect subsidiary) to replace the existing Director/Commissioners with members of the Churchill Board. The Company was advised on 13 March 2012 that the application was unsuccessful. Churchill has appealed that decision to the Supreme Court of the Republic of Indonesia, the decision of which is pending. The Company is also currently considering its alternatives in relation to this matter. In November 2011, ICD received notices that members of Ridlatama had filed two unlawful act claims in the South Jakarta District Court seeking orders that ICD s 75% interest in PT Ridlatama Tambang Mineral and PT Trade Powerindo be declared null and void. These court proceedings remain on foot. ICD considers the Ridlatama claim to have no commercial or legal merit and will continue to take whatever action it deems necessary to fully protect its legal rights in this matter. OTHER ASSETS In addition to the EKCP, Churchill continued to maintain its 20% direct interest in the original South Woodie Woodie Manganese Project in Western Australia, with the balance held by ASX listed Spitfire Resources Limited (ASX: SPI). During the year, the Group s direct shareholding in Spitfire Resources Limited was diluted from 18.44% to 15.99% by additional equity issues by Spitfire in which the Group did not participate. OUTLOOK The cash position at 30 June 2012 of $12.0 million is healthy and allows a solid base to continue Churchill s international arbitration claim over the coming year. CORPORATE FINANCIAL SUMMARY Results of Operations The Group incurred a loss for the year of US$10,443,956 compared to a loss of US$38,278,947 for the previous year. The 2011 result included an impairment of the value of the EKCP of US$27,897,416. The basic loss per ordinary share for the year was 8.61c compared with the loss per share of 38.57c for the previous year. Significant expenditure items during the period include: Legal and professional fees of US$2.64 million (2011: US$3.32 million) which includes significant costs incurred to protect the EKCP licenses and then the subsequent filing of its claim in international arbitration against the Republic of Indonesia; Consulting, directors and professional fees of US$2.18 million (2011: US$2.55 million); CHURCHILL MINING PLC 7 ANNUAL REPORT 2012

9 REVIEW OF OPERATIONS AND FINANCE Exploration and evaluation expenditure of US$1.46 million (2011: US$27.89 million); and Public relations and media outreach programs of US$1.26 million (2011: US$0.030 million). The balance of operating expenditure is in line with the Company s current status including consulting and management resources allocated to the EKCP legal proceedings and filing of international arbitration. During May/June 2012 a number of staff within the EKCP and Jakarta office were made redundant due to the negative result of the Supreme Court decision in relation to the appeal against the revocation of the EKCP licenses. Selected Annual Information The Group s statement of financial position at 30 June 2012 and comparatives at 30 June 2011 and 30 June 2010 are summarised as follows: $ 000 $ 000 $ 000 Non-current assets 4,099 6,585 25,846 Current assets 15,604 26,207 27,501 Total assets 19,703 32,792 53,347 Current liabilities 4,341 5,084 4,408 Non-current liabilities Total liabilities 4,414 5,150 4,450 Net assets 15,289 27,642 48,897 Liquidity & Capital The Group began the year with US$22.3 million in cash and ended the year with US$12 million cash holdings. Total operating cash expenditure was US$8.97 million (2011: US$8.44 million). During the year the Company made advances to subsidiaries of US$6,042,722. The Company also received US$305,643 pursuant to the exercise of share options. The Group remains well funded to pursue the international arbitration at ICSID against the Republic of Indonesia which has now become the main focus for the Group. CHURCHILL MINING PLC 8 ANNUAL REPORT 2012

10 BOARD OF DIRECTORS David Quinlivan (aged 57) Non Executive Chairman Mr Quinlivan is a Mining Engineer and Principal of Borden Mining Services. Mr Quinlivan has over 30 years experience on projects throughout the world. He has significant mining and executive leadership experience with 11 years of service at WMC Resources Ltd, followed by a number of highprofile mining development positions. Since 1989, Mr Quinlivan has served as Chief Executive Officer of Sons of Gwalia Ltd (during the corporate reconstruction of the company and post appointment of administrators), Chief Executive Officer and Chief Operating Officer of Mt. Gibson Mining Iron Ltd. Mr Quinlivan was appointed as President and CEO of Alacer Gold Corp in August Mr Quinlivan is a Fellow of the Australian Institute of Mining and Metallurgy, Fellow of the Financial Services Institute of Australia, Member of the Mining Industry Consultants Association and Member of the Institute of Arbitrators & Mediators Australia. Nicholas Smith (aged 60) Managing Director (appointed 18 September 2012) Mr Smith has some 30 years experience in the international resource/resource development industry, including significant experience in project management of major international litigation and arbitration disputes. Mr Smith also has significant experience in mergers and acquisitions and project financing. Mr Smith holds a Bachelor of Laws from the University of Western Australia and was admitted to practice as a Barrister and Solicitor of the Supreme Court of Western Australia in His previous experience includes more than 10 years as Group General Counsel for Normandy Mining Limited which, prior to its merger with Newmont Mining Corporation, was Australia s largest gold producer and which had interests in a number of international projects enjoying the protection of bilateral investment treaties. Mr Smith has also served as a director of a number of ASX listed companies including Red 5 Limited, Mindax Limited and NiQuest Limited. Faroek Basrewan (aged 67) Non Executive Director Mr Basrewan specialises in dealing with the various levels of Indonesian central, provincial and local government. A graduate in law from the Indonesian Christian University, Mr Basrewan has had a long and distinguished career in general mediation and dispute resolution, government and regulatory relations within Indonesia. Mr Basrewan has distinguished himself in service to Indonesia as Special Staff to the Minister of Defence and has carried out various assignments for the Indonesian Government over many years. He was the Special Assistant to the first democratically elected Indonesian President, Abdul Rachman Wahid. CHURCHILL MINING PLC 9 ANNUAL REPORT 2012

11 BOARD OF DIRECTORS Gregory Radke (aged 47) Non Executive Director Mr Radke is a key member of the senior management team of Pala Investments AG, serving as General Counsel. Pala Investments AG is the exclusive advisor to Pala Investments Holdings Limited, a long-term private equity investment group and the largest shareholder in Churchill Mining. Pala has a wealth of experience in supporting and advising natural resource companies in various stages of development. Prior to joining Pala, Mr Radke was a Vice President and Corporate Counsel at Prudential Financial Inc., responsible for all aspects of legal and transactional oversight of the pan-asian and Mexican/Latin American asset management businesses of its Pramerica Real Estate Investors division. He specialised in the foreign investment regimes of various developing countries across Asia, Africa and the Americas, as well as the formation and management of investment funds for institutional investors from Asia, Australia, Europe, the Middle East and North America. In the late 80 s and through the 90 s, Mr Radke split his time between Asia and New York, holding various positions in the legal sector in cities such as Hong Kong, Shanghai, Taipei and Tokyo and, in particular, as a senior associate with Clifford Chance Rogers & Wells LLP s New York office, where he advised clients on public and private offerings of equity and debt, as well as on mergers and acquisitions involving both publicly and privately traded companies. Mr Radke received a J.D. from Columbia University and a B.A., magna cum laude, from Harvard University. Rachmat Gobel (aged 50) Non Executive Director Mr Gobel is the President Director and majority owner of PT Gobel International ( PT Gobel ). PT Gobel is a well-known and highly respected company with an impressive track record in partnering with international companies in Indonesia. PT Gobel recently celebrated the 50 th anniversary of its successful partnership with the Matsushita Corporation (now Panasonic Corporation), and is the local representative of Qatar Telecom in PT Indosat Tbk, one of the largest mobile telecommunications providers in Indonesia. Mr Gobel serves as the director for numerous corporations within PT Gobel International, as well as Commissioner of PT Indosat Tbk and PT SMART, Tbk. He is the Vice Chairman of the Advisory Board of the Indonesian Chamber of Commerce and Industry, the Vice Chairman of the Employers Association of Indonesia, and the Chairman of the Patronage Council of the Indonesian-Japan Economic Committee. In addition to his business activities, Mr Gobel is the Vice Chairman of the Indonesian Red Cross and the Vice Chairman of the Indonesian Olympic Committee, as well as Executive Chairman of the Organizing Committee of the SEA Games for Fara Luwia (aged 44) Non Executive Director Ms Luwia is a successful Indonesian businesswoman. As President Director of PT Goldkey Property she leads large commercial property/land deals in Indonesia. Currently Ms Luwia is developing one of the largest modern rice mills in Indonesia in partnership with a large global commodities trader based in Switzerland. Ms Luwia was previously involved in the franchise business of major European brands in clothing and furniture, and was also active in real estate for more than 12 years. CHURCHILL MINING PLC 10 ANNUAL REPORT 2012

12 BOARD OF DIRECTORS John Nagulendran (aged 35) Non Executive Director Mr Nagulendran is the Assistant General Counsel of Pala Investments AG, the exclusive advisor to Pala Investments Holdings Ltd, a multi-strategy investment company dedicated to investing in, and creating value across the mining sector in both developed and emerging markets. Pala seeks to assist companies in which it has long-term shareholdings by providing strategic advice and innovative financing solutions. Prior to joining Pala Investments, Mr Nagulendran was a practising lawyer at international law firm Herbert Smith LLP, where he specialized in the energy and natural resources sectors. He has worked in London, Singapore and Jakarta advising major corporates on acquisitions, disposals and equity financing. Prior to Herbert Smith, Mr Nagulendran was at Rajah & Tann LLP, working on commercial and banking litigation matters. He is qualified as a solicitor in England and Wales and an advocate and solicitor in Singapore. CHURCHILL MINING PLC 11 ANNUAL REPORT 2012

13 DIRECTORS REPORT For the year ending 30 June 2012 The Directors are pleased to present their Report and the audited consolidated financial statements of the Company and its subsidiaries for the year ended 30 June PRINCIPAL ACTIVITIES AND BUSINESS REVIEW The principal activities of the Group during the year were to continue to actively protect its interest in the East Kutai Coal Project ( EKCP ) following the negative ruling from the Samarinda Administrative Tribunal that sought to overturn the East Kutai Regent s ( Bupati s ) decision to revoke the EKCP licenses. Churchill subsequently filed its claim in international arbitration against the Republic of Indonesia for breaches of Indonesia s obligations under the Bilateral Investment Treaty between the United Kingdom and the Republic of Indonesia (the "UK-Indonesia BIT"). The claim was filed at the International Centre for Settlement of Investment Disputes ("ICSID") in Washington D.C. In the ICSID arbitration Churchill is seeking full relief owed to it under the provisions of the UK-Indonesia BIT and under international law. On the 25th June 2012 ICSID advised that Churchill s Request for Arbitration had been formally registered at ICSID. The arbitration claim has in effect become Churchill s principal activity and focus for the Company. The information that fulfils the requirements of the business review can be found in the Chairman s Statement and the Operating Review, which are incorporated into this Report. These statements provide an analysis of the activities and future of the Company. Principle risks and uncertainties are detailed in point 13 below. 2. RESULTS AND DIVIDENDS Loss of the Group after taxation amounted to US$10,443,956 (2011 Loss: US$38,278,947). The Directors do not recommend the payment of a dividend (2011: Nil). 3. FINANCIAL INSTRUMENTS Details of the use of financial instruments by the Company and its subsidiary undertakings are contained in Note 21 of the financial statements, together with an indication of the risks that the Group is exposed to and the risk management objectives that are in place. 4. EMPLOYMENT PRACTICES The Group and Company are equal opportunity employers, with recruitment, remuneration and career progression not influenced by race, gender, marital status or disability. The Group and Company promote workforce diversity and have a subsidiary in Indonesia which is staffed by mainly local Indonesian employees. 5. HEALTH, SAFETY AND ENVIRONMENT The Group and Company are committed to effective Health, Safety and Environment practices, which benefit its employees, contractors and the community within which the Group conducts its operations. CHURCHILL MINING PLC 12 ANNUAL REPORT 2012

14 DIRECTORS REPORT For the year ending 30 June DONATIONS During the current year there were charitable community donations made to the value of US$147,145 (2011: US$49,522). 7. KEY PERFORMANCE INDICATORS The International arbitration claim has in effect become Churchill s principal activity and focus for the Company. The key performance indicator is to manage the arbitration claim in an efficient and cost effective manner. The Directors regularly monitor available cash to meet on-going administration and legal costs with the aim to recover value for its shareholders. The main financial key performance indicator is the return for shareholders being the performance of the share price of the Company. Further analysis in relation to the key performance indicators, the International arbitration and the current status of the EKCP licenses are included in the Chairman s Statement and the Review of Operations and Finance. 8. CORPORATE STRUCTURE Churchill Mining Plc is a company limited by shares that is incorporated and domiciled in England and Wales. The Company has the following subsidiaries: Planet Mining Pty Ltd Australia (100%) PT Indonesia Coal Development Indonesia (100%) Indonesia Coal Trading Pte Ltd Singapore (100%) Churchill Mining Pte Ltd Singapore (100%) Indonesia Coal Investments No1 Pte Ltd Singapore (100%) Indonesia Coal Investments No2 Pte Ltd Singapore (100%) Infrastructure Investments S.a.r.l Luxemburg (100%) Black Kutai 1 S.a.r.l Luxemburg (100%) Coal Investments S.a.r.l Luxemburg (100%) PT Techno Coal Utama Prima Indonesia (100%) PT Ridlatama Tambang Mineral Indonesia (75%) PT Ridlatama Trade Powerindo Indonesia (75%) PT Ridlatama Steel Indonesia (75%) PT Ridlatama Power Indonesia (75%) Note: 5% of PT Indonesia Coal Development is owned by Planet Mining Pty Ltd. 9. FUTURE DEVELOPMENTS Likely developments in the operations of the Group have been included in the Review of Operations and Finance and Chairman s Statement which are incorporated into this Report. CHURCHILL MINING PLC 13 ANNUAL REPORT 2012

15 DIRECTORS REPORT For the year ending 30 June DIRECTORS The following have been Directors of the Company since the start of or during the financial year ended 30 June 2012: David Quinlivan Nicholas Smith (Appointed 18 September 2012) Faroek Basrewan Jan Castro (Resigned 1 May 2012) Gregory Radke Fara Luwia Rachmat Gobel John Nagulendran (Appointed 1 May 2012) Directors Interests in Shares and Options The following tables show the beneficial interests of the directors who held office since 1 July 2011 in the ordinary shares and options of the company. Ordinary shares Shares held at 1 July 2010 Additions Shares held at 30 June 2011 Additions Shares held at 30 June 2012 David Quinlivan 804, ,000 1,454,092 1,200,000 2,654,092 Faroek Basrewan Fara Luwia** - 8,705,250 8,705,250-8,705,250 Rachmat Gobel** - 10,639,750 10,639,750-10,639,750 Jan Castro * Gregory Radke * John Nagulendran * * Mr Jan Castro is the Managing Director of Pala Investments AG who is the exclusive advisor to Pala Investment Holdings Limited which holds 31,492,388 (2011: 31,492,388) shares in the Company (25.70%) (2011: 26.04%). Mr Jan Castro resigned on 1 May Mr Gregory Radke is the General Counsel for Pala Investment AG and Mr John Nagulendran who was appointed on 1 May 2012, is the Assistant General Counsel of Pala Investments AG. ** Ms Fara Luwia (45%) and Mr Rachmat Gobel (55%) have a beneficial interest in GL Global Investment Limited which holds 19,345,000 (2011: 19,345,000) shares in the Company (15.79%) (2011:15.99%). CHURCHILL MINING PLC 14 ANNUAL REPORT 2012

16 DIRECTORS REPORT For the year ending 30 June 2012 Share Options 2012 Options held at 1 July 2011 Date of grant Net changes during the year Balance at 30 June 2012 Option exercise price Expiry date David Quinlivan* 1,200, March 2007 (1,200,000) - 12p 28 March ,000 9 May ,000 75p 9 May August ,000,000 1,000,000 50p 19 August 2016 Faroek Basrewan 450,000 9 May ,000 75p 9 May August , ,000 50p 19 August 2016 Jan Castro - 19 August ,000-50p 19 August (800,000) - 50p 1 June 2012 Rachmat Gobel - 19 August , ,000 50p 19 August 2016 Fara Luwia - 19 August , ,000 50p 19 August 2016 Gregory Radke - 19 August , ,000 50p 19 August 2016 Total 2,100,000 3,000,000 5,100,000 * On 28 March 2012 Mr David Quinlivan exercised 1,200,000 12p share options. Using the prevailing share price on the day of exercise the unrealised gain by Mr Quinlivan is approximately $9,369. Share Options 2011 Options held at 1 July 2010 Date of grant Exercised/ sold during the year Balance at 30 June 2011 Option exercise price Expiry date David Quinlivan* 650, May 2006 (650,000) - 35p 23 May ,200, March ,200,000 12p 28 March ,000 9 May ,000 75p 9 May 2013 Faroek Basrewan 450,000 9 May ,000 75p 9 May 2013 Paul Mazak** 140, April 2006 (140,914) - 35p 18 April ,157, May 2006 (1,157,100) - 35p 23 May ,200, March 2007 (1,200,000) - 12p 28 March ,150,000 9 May ,150,000 75p 9 May 2013 Jan Castro*** Total 6,398,014 (3,148,014) 3,250, * On 23 May 2011 Mr David Quinlivan exercised 650,000 35p share options. Using the prevailing share price on the day of exercise the unrealised gain by Mr Quinlivan is approximately $210,295. CHURCHILL MINING PLC 15 ANNUAL REPORT 2012

17 DIRECTORS REPORT For the year ending 30 June 2012 ** On 28 April 2011 Mr Paul Mazak sold 1,157,100 35p share options at 5p per option and 1,200,000 12p share options at 10p per option. The approximate aggregate gain made on the sale disclosed by Mr Mazak was $177,855. Subsequently, 1,200,000 12p and 140,914 35p options were exercised. The remaining 1,016,186 35p share options lapsed. *** Mr Jan Castro is the Managing Director of Pala Investments AG who is the exclusive advisor to Pala Investment Holdings Limited ( Pala ). During the year 140,914, 35p options expired on the 18 April 2011 and 359,086, 35p options were exercised on 16 May Using the prevailing share price on the day of exercise the unrealised gain by Pala is approximately $130,697. Directors remuneration and other interests The aggregate remuneration of the directors of the Company was as follows: $000 $000 Directors Fees Consultancy Fees Bonus Benefits in kind ,132 Share based payments expensed during year 288-1,279 1,132 Average number of directors during the year 6 4 The following table shows the directors who served during the year together with an analysis of their remuneration: 2012 Directors Fees Consultancy Fees Bonus Benefits in kind Total $000 $000 $000 $000 $000 Executive directors David Quinlivan Non-executive directors Faroek Basrewan Jan Castro* John Nagulendran** Greg Radke Fara Luwia Rachmat Gobel * Jan Castro resigned as a director on the 1 st May 2012, the amount above includes all fees up to the date of resignation. ** John Nagulendran was appointed a director on the 1 st May 2012, the amount above includes all fees paid from the date of appointment. CHURCHILL MINING PLC 16 ANNUAL REPORT 2012

18 DIRECTORS REPORT For the year ending 30 June 2012 The Directors have resolved, subject to shareholder approval, to accept fully paid shares in lieu of the payment of Directors fees from 1 April 2012 at a price calculated as the volume weighted average mid-market price of the Company s Ordinary Shares as listed on the AIM market of the London Stock Exchange plc throughout the relevant year as calculated by the Company. A resolution will be put to shareholders at the 2012 annual general meeting Directors Fees Consultancy Fees Bonus Benefits in kind Total $000 $000 $000 $000 $000 Executive directors Paul Mazak* David Quinlivan Non-executive directors Faroek Basrewan Jan Castro Greg Radke Fara Luwia Rachmat Gobel ,132 * Paul Mazak resigned as a director on the 21 st March 2011, the amount included above includes all fees up to the date of resignation. Re-election of Directors The Articles of Association require one third of the Directors who are subject to retirement by rotation to retire and submit themselves for re-election each year. 11. ANNUAL GENERAL MEETING Details of the Company s forthcoming annual general meeting are set out in a separate circular that will be sent to all Shareholders with the Annual Report and Accounts. 12. SUPPLIER PAYMENT POLICY The Group and Company policy, in relation to all of its suppliers, is to negotiate its terms of payment when agreeing the terms of the transactions, to ensure that those suppliers are made aware of the terms of payment and to abide by those terms provided that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not follow any universal code or standard on payment practice but subsidiary companies are expected to establish payment terms consistent with local procedures, custom and practice. Trade Payables of the Group at 30 June 2012 represent 38 days purchases (2011: 41 days). CHURCHILL MINING PLC 17 ANNUAL REPORT 2012

19 DIRECTORS REPORT For the year ending 30 June PRINCIPAL RISKS & UNCERTAINTIES The Board regularly reviews the risks to which the Group is exposed and endeavours to minimise these risks as far as possible. The following summary, which is not exhaustive, outlines some of the risks and uncertainties facing the Group at its present position following the revocation of the licenses that make up the East Kutai Coal Project. Litigation risk As detailed in the Chairman s statement and Operating and Financial Review, the Company is engaged in a number of legal actions of which the outcome remains unknown. There can be no assurance that any or all of the various proceedings may be awarded in favour of the Company. The Company has engaged experienced International Counsel to assist in mitigating this risk. Sovereign risk The Group only has an administration office in Indonesia where there are a number of associated risks over which it will have no control. Potential risks in Indonesia could include economic, social or political instability, terrorism, currency instability, government participation and taxation. Reliance on key management The Group s future success is substantially dependant on the continued services and performance of its key personnel. The Company s aim is to ensure that key personnel are rewarded for their contribution to the Group and are motivated to enhance the return to Shareholders. There can be no assurance that the Company s current personnel, systems, procedures and controls will be adequate to support any future operations or expansion. Funding risk The ability of the group to arrange additional financing in the future will depend, in part, on the prevailing capital market conditions as well as the general performance of the Company and the progress of the International arbitration claim. There can be no assurance that additional capital or other forms of finance may be available if needed, or that, if available the terms of such financing will be favourable to the group. Currency risk The value of ordinary shares may fluctuate in accordance with the foreign currency exchange rates. The Company is exposed to exchange rate risk in its daily operations and mitigates this risk where possible by holding currency in GBP, USD and AUD based on budgeted expenditure. 14. DIRECTORS INDEMNITY PROVISIONS All of the current Directors benefited from qualifying third party indemnity insurance at a cost of $40,278 (2011: $26,820) in place during the year ended 30 June 2012 and as at the date of approval of the financial statements. CHURCHILL MINING PLC 18 ANNUAL REPORT 2012

20 DIRECTORS REPORT For the year ending 30 June EVENTS AFTER THE REPORTING PERIOD Events after reporting period are disclosed in Note GOING CONCERN The Directors confirm that, after making enquiries, they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing these accounts. 17. AUDITORS BDO LLP has indicated its willingness to accept appointment as auditor of the Group for the year ending 30 June A resolution proposing their reappointment is contained in the Notice of Annual General Meeting and will be put to the Shareholders at the Annual General Meeting. 18. DIRECTORS STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS Each of the Directors, who were all members of the Board at the time of approving the Annual Report, confirms that having made enquiries of fellow Directors: So far as the Directors are aware, there is no relevant information of which the Company s Auditors are unaware; and They have taken all the steps that ought to have been taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company s Auditors are aware of that information. By Order of the Board David Quinlivan Non Executive Chairman Churchill Mining Plc 24 October 2012 CHURCHILL MINING PLC 19 ANNUAL REPORT 2012

21 CORPORATE GOVERNANCE STATEMENT For the year ending 30 June 2012 The Company s shares are traded on the AIM market of the London Stock Exchange and the Company is not therefore required to report on compliance with the Combined Code appended to the listing rules. However, the Company recognises the importance of, and is committed to high standards of Corporate Governance. The Company has adopted a Corporate Governance Manual that details the Corporate Governance principles and practices in place. The Board currently consists of a Non Executive Chairman, Managing Director (appointed 18 September 2012), one Executive Director and four Non Executive Directors. The Board is satisfied that, having considered the background and current circumstances of each of the Non Executive Directors, there are no relationships or other matters which could affect their respective judgement in carrying out their duties. All of the Directors bring judgement to bear on issues affecting the Group and all have full and timely access to information necessary to enable them to discharge their duties. The current structure of the Board ensures that no one individual or group is able to dominate the decision making process. All Directors have access to the Company Secretary and may take independent professional advice at the Company s expense. The Company does not make any formal provision for training of new Directors but any new Director is briefed and made fully aware of the Company s activities. Following changes arising under the Companies Act 2006, the Board has a process for reporting and managing any conflicts of interests held by Directors. Under the Company s articles of association, the Board has the authority to approve any potential conflicts. Board Meetings During the year ended 30 June 2012, seven board meetings were held. In addition various matters were dealt with by circular resolution signed by all parties.the Directors who were members of the Board during the year attended as follows: Board of Directors Meetings entitled to attend Attendance David Quinlivan 7 7 Faroek Basrewan 7 7 Jan Castro 5 4 Gregory Radke 7 7 Fara Luwia 7 4 Rachmat Gobel 7 1 John Nagulendran 2 2 A formal schedule of matters specifically reserved for the Board is in place. The Board receives detailed proposal papers in advance of meetings, together with management presentations to facilitate proper consideration and debate of matters brought before it. The Board is primarily responsible for the strategic direction of the Group. Major strategic initiatives involving significant cost, perceived or actual risk are only undertaken following their full evaluation by the Board. Matters of an operational nature are delegated to the Chairman, Managing Director or Executive management. CHURCHILL MINING PLC 20 ANNUAL REPORT 2012

22 CORPORATE GOVERNANCE STATEMENT For the year ending 30 June 2012 Internal Control and Audit The Board is responsible for establishing and maintaining the Group s system of internal financial controls. Internal financial control systems have been designed to meet the needs of the Group at its current stage of development. The Financial Controller, with the support of the Company Secretary, reviews the internal controls and reports to the audit and risk committee with any identified concerns. The Directors have reviewed the effectiveness of the procedures presently in place and consider that they are still appropriate for the nature and scale of the operations of the Group. Due to the relatively small size of the Group s operations, it is not considered economically viable or necessary to employ Internal Auditors. Audit and Risk Committee Chaired by Gregory Radke, the Committee comprises Mr Radke and Ms Luwia. The Audit Committee is responsible for ensuring that appropriate financial reporting procedures are properly maintained and reported on and where required meet with the Group s Auditors and review their Reports on the accounts and the Group s internal controls. The Committee also reviews the performance of the Group s Auditors to ensure an independent, objective, professional and cost-effective relationship is maintained. As well as reviewing the Company s published financial results, the Committee reviews the Group s corporate governance processes (including risk analysis), accounting policies and procedures, reporting to the Board on any control issues identified. The Audit Committee meets twice per year to review the interim and annual financial statements and to consider any other associated matters. The Auditors have unrestricted access to the Chairman of the Audit Committee. Remuneration Committee The Remuneration Committee consists of one independent Non Executive Director and one Executive Director. The Committee s aim is to ensure that Executive Directors and key management are rewarded for their contribution to the Group and are motivated to enhance the return to Shareholders. The Remuneration Committee is responsible for reviewing the performance of Executive Directors, setting remuneration, considering the grant of options under any share option scheme and, in particular the price per share and the application of performance standards which may apply to any such grant. The Remuneration Committee meets on an as required basis. Shareholder Relations Communications with Shareholders is undertaken through face-to-face meetings, general news releases and the release of interim and full-year results. The Company s website ( facilitates the publication of results and the posting of news regarding the Group and its developments. CHURCHILL MINING PLC 21 ANNUAL REPORT 2012

23 STATEMENT OF DIRECTORS RESPONSIBILITIES The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that year. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company s transactions and disclose, with reasonable accuracy at any time, the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of the Companies Act They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps in the prevention and detection of fraud and other irregularities. Website publication The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein. CHURCHILL MINING PLC 22 ANNUAL REPORT 2012

24 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF CHURCHILL MINING PLC We have audited the financial statements of Churchill Mining Plc for the year ended 30 June 2012 which comprise the consolidated statement of comprehensive income, consolidated and company statement of financial position, consolidated and company statements of changes in equity, consolidated and company statement of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act This report is made solely to the company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s (APB s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB s website at Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group s and the parent company s affairs as at 30 June 2012 and of the group s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act Opinion on other matters prescribed by the Companies Act 2006 In our opinion, the information given in the directors report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or CHURCHILL MINING PLC 23 ANNUAL REPORT 2012