Cloudified Holdings Limited Regulatory News (CHL)

22 Oct 2009 07:00



CHURCHILL MINING PLC

FINAL RESULTS FOR THE YEAR ENDED 30 JUNE 2009

OPERATIONAL

East Kutai Coal Project (75%) Indonesia

Sendawar Coal Bed Methane (70%) Indonesia

South Woodie Woodie Manganese (20%) Australia

Corporate

Financial

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CHAIRMAN'S STATEMENT

I am pleased to present Churchill's Annual Report and Financial Statements following another year of outstanding exploration success and project enhancement. As you are no doubt aware, Churchill operates a portfolio of energy projects in Indonesia and our principal property is the world-class East Kutai Coal Project ("EKCP").

Prior to describing in a little more detail the exploration and project development work that has been completed by your company during the past year, it is first worth briefly reflecting on just how quickly Churchill has been able to add value to the EKCP by increasing the project's coal resource from a zero base to the currently identified resource of 2.5 billion tonnes in less than two years. It is also worth noting that all exploration and project enhancement work undertaken to date on the EKCP has been carried out within budget which has in turn lead to an impressively low resource definition cost per tonne.

At the time of writing, a JORC compliant resource of 2.5 billion tonnes of coal has been defined at the EKCP (Churchill 75%). More importantly, however, is the fact that the Company's independent technical advisors, SMGC Consultants, have recently confirmed that 1.3 billion tonnes of the EKCP resource can now be categorised into the JORC Measured and Indicated categories, considerably increasing confidence in the resource.

This upgrade of a large fraction of the anticipated tonnage at EKCP, along with the other developments that have occurred over the past year, will all be reflected in Churchill's maiden reserve statement, which is scheduled to be published soon.

In addition to progressing resource definition work at EKCP, I am also pleased to advise that Churchill has made significant strides in other key areas such as infrastructure planning over the past year to bring the resource closer to production. 

Key items completed or in progress at the time of writing include:

80% completion of the design engineering and infrastructure program for the EKCP;

Discussions with potential suppliers of key long-lead items already initiated;

Completion of a survey of the conveyor system route from the mine to the proposed port site;

Selection and preparation of a proposed port site, including the completion of a bathymetric survey of the sea bed at the proposed port site to better understand berth design possibilities;

Initiation of priority pre-development work such as pit design, pit geotechnical work and infrastructure planning; 

Ongoing detailed coal testing and verification, with plans in place to extract a bulk coal sample from the future mine pit to understand the handling and performance characteristics of the coal.

Churchill's management anticipates that the progress outlined above will result in the finalisation of a project feasibility study by the end of the calendar year.

With the recent passage of the Indonesian Bill on Mineral and Coal Mining in Jakarta, the Company's management has proactively consulted with professional advisors to ensure we are in compliance with the new legislation. The Company has updated its mining licenses in accordance with the new legislation and our proactive steps to address this legal change has only enhanced our ability to expedite development of the EKCP.

Finally, in the context of continuing to add value to the EKCP going forward, we believe that the strategic location of the EKCP, in close proximity to Asian end-markets and the clean-burning nature of this coal, with its comparatively low ash and sulphur content by global standards, will result in EKCP coal being a sought after commodity.

Given the accomplishments of the past year and in anticipation of a positive feasibility study, Churchill has formed a solid platform from which to prepare for the next phase of growth and development at the EKCP. For this reason the Company has initiated a review of the three most likely means of financing the EKCP project, namely:

(1) A "standalone" strategy based on financing the project through a combination of equity and project debt; (2) A joint venture with a strategic partner combined with project financing; and

(3) The outright sale of part of the project once its true value can be demonstrated through the feasibility study.

Churchill's second Indonesian project, the Sendawar CBM Project, with potentially more than 5 trillion cubic feet of gas, retains its strategic value. The Company has initiated discussions regarding the eventual development of this project with international oil, gas and CBM companies for the provision of technical assistance, off-take agreements and potential joint ventures.

Reflecting the Company's focus on its Indonesian assets, Churchill divested most of its interest in the South Woodie Woodie Manganese Project in Western Australia, though it retains a 20% direct equity investment in the project, as well as at the time of writing 24.75% (30 June 2009: 28.8%) interest in Spitfire Resources, the ASX-listed company that purchased the Company's stake.

Despite the difficult and unpredictable circumstances over the past year resulting from the global financial crisis and related recessions, our belief in coal and CBM remains unshaken. While prices have dropped worldwide for all types of thermal coal, they remain in most cases above historical averages. In addition, the International Energy Agency ("IEA") has recently predicted that world coal consumption will grow at an average of 2.6% per year in the period 2005-2015, with the contribution of coal as a percentage of global power generation reaching 46% in 2030. Churchill, as an emerging coal producer with a world-class coal resource located in the backyard of energy-hungry nations such as India, China, South Korea and Japan, is well-positioned to benefit from these trends.

In conclusion, I would like to thank my fellow board members, Managing Director Paul Mazak and non-executive directors Faroek Basrewan and Jan Castro for their contributions to Churchill over the past year. I would also like to thank founding director Mr James Hamilton (who resigned during the year) for his efforts since the Company listed in 2005. Finally, on behalf of the Board I would like to thank all of our shareholders for their continuing support. The Company sees the upcoming 12 months as potentially the most rewarding in Churchill's history. 

David Quinlivan

Chairman

Churchill Mining Plc

  REVIEW OF OPERATIONS AND FINANCE

OVERVIEW

During the past year Churchill Mining Plc ("Churchill") has made great strides in driving its main project, the East Kutai Coal Project ("EKCP") which it controls with its Indonesian partners (CHL 75%), towards full resource definition.

EKCP has a JORC resource of 2.5 billion tonnes of coal, which was recently expanded from an initial resource of 1.4 billion tonnes. Its coal is clean-burning by global standards, being comparatively low in ash and sulphur, and the resource will benefit from its close proximity to Asian end-markets once it is in production.

Churchill's independent technical advisors, SMGC Consultants, recently confirmed that 1.33 billion tonnes of the EKCP JORC resource can now be categorised into the JORC Measured and Indicated categories. In addition, there are 1.14 billion tonnes of coal in the JORC Inferred category.

This upgrade of a large component of the anticipated tonnage at EKCP, along with the other developments described below that have occurred over the past year, will all be reflected in Churchill's maiden reserve statement, which is scheduled to be published shortly. 

With the task of full JORC resource definition finished, the Company will increase its focus shifts on future mining scenarios and examining the optimum way in which it can generate positive cashflows and create shareholder value.

EAST KUTAI COAL PROJECT - YEAR IN REVIEW

The EKCP continues to be Churchill's flagship project and is the focus of most of its operations and investment to date. Churchill regards the EKCP as a highly strategic asset, ideally located in relation to core energy consuming markets and in the context of rising demand for energy resources such as high quality thermal coal.

In May 2007, Churchill reached a Joint Venture Agreement with PT Techno Coal Utama giving the Company a 75% interest in the EKCP, which covered an area of approximately 575km² (made up of four blocks) situated 110km west from the main population centre of Sangatta. In April 2008, the Company acquired a 75% interest in an additional 200km² of coal tenements immediately abutting the western boundary of the EKCP, and in particular, adjacent to the current area of intensive drilling and resource calculation work being carried out by the Company.

Churchill, along with its Indonesian partners, has focussed over the last year on the successful completion of the following milestones in order to best position the EKCP for production: 

a) Upgrade of Resources and Reserves

The main focus of the year was to continue the intensive drilling to upgrade the resource and reserve of the EKCP and to confirm its world-class size.  The drilling programme was undertaken with a mix of open hole and core drilling, utilising three drilling rigs and 200 support personnel. Drilling initially focused on the Northern and Southern areas of the RTM block. Total drilling completed to date is approximately 46,000 metres resulting in the upgrading of the resource to 2.5 billion tonnes and the confirmation of the deposit's medium calorific coal with low sulphur and low ash content. 

The new JORC resource figure of 2.5 billion tonnes has exceeded the Company's initial 500 million tonne target by close to 500%. Churchill has so far defined a coal system 18 kilometres long and approximately 3 kilometres wide. To date only 30% of the EKCP area has been drilled and the existing resource remains open along strike.

At the beginning of the period, the JORC resource measured 1.412 billion tonnes for the EKCP. This consisted of the following:

118 Mt measured resource

322 Mt indicated resource

972 Mt inferred resource

1.412 billion tonnes JORC resource

By the end of the year, this had been upgraded to approximately 2.5 billion tonnes in the following categories:

556 Mt measured resource

777 Mt indicated resource

1,148 Mt inferred resource

2.481 billion tonnes JORC resource

A further 618Mt is to undergo additional work to bring it into Inferred status.

b) Mining Permits

The securing of the mining permits from the Indonesian Government for the EKCP was critical this year. Subsequent to the passing of the Indonesian Bill on Mineral and Coal Mining in Jakarta and after taking time and professional advice to understand the future ramifications of this new legislation, the Company completed the change of its Exploration KPs (Kuasa Pertambangan) into IUP Exploitation (Izin Usaha Pertambangan) Mining Business Licences. 

c) Design and Engineering of the EKCP

A number of the engineering and exploration milestones have been achieved during the year.  This year has seen great progress in pre-development work such as pit design, pit geotechnical work and mine and infrastructure planning for the EKCP. During the quarter to 30 June 2009, the Company continued to complete detailed engineering plans for the mine, the haulage route, the multi-flight conveyor system and the port. Concurrently, the Company has completed a detailed field survey of the haulage and conveyor routes and begun land acquisition negotiations. 

Approximately 80% of the engineering feasibility work is complete and finalisation of the feasibility study is expected by the end of 2009. 

d) Successful Capital Raising

In May 2009, Churchill successfully completed a capital raise in the amount of £5 million.  This money was raised through the placing of 10,000,000 new shares at 50p per share with institutional investors.  The placing was oversubscribed and the 50p placing price did not reflect a discount to the prevailing share price at the time. The new capital will be used to advance the development of the EKCP and for general working funds. The placing represents 12.9% of the issued share capital. The new shares were admitted to trading on the AIM market of the London Stock Exchange on 3 June 2009.

e) Prospective Customers

Churchill also announced during the year that it's fully owned subsidiary, PT Indonesia Coal Development (ICD), has been selected as a prospective thermal coal supplier to Indonesia's PT Cirebon Electric Power (CEP), which is building a 660 megawatt power plant in West Java which is due to start operations in 2011.

ONGOING EKCP WORK

Due to the large size of the deposit, Churchill has focused its mine and infrastructure planning to create a bulk mining operation producing up to 20 million tonnes of coal per annum.  

Geotechnical drilling in the north of the RTM block has already been completed to measure rock competency for future open pit mining.  Geotechnical drilling is also underway in the southern area of the block.  Further holes will soon be drilled to sterilise an area near the middle of the resource envelope, which has been identified as the location for the coal processing plant. A detailed coal testing and verification programme is underway which includes laboratory work both in Indonesia and Australia.

FEASIBILITY STUDY

Following from the scoping study conducted last year, a detailed feasibility study is expected to be completed by the end of the year.

At the date of this report the following milestones to be completed were as follows:

Excitingly, this feasibility work is being conducted at a time of rising energy and commodities demand. Forty percent of the world's energy is fuelled by coal. From 2009 demand for thermal coal is expected to grow worldwide and it is this strong demand, particularly from emerging markets such as China, India and Indonesia, that forms the centre piece of Churchill's business plan.

PROJECT FINANCING OPTIONS

In parallel with the ongoing feasibility work described above and in anticipation of a positive feasibility study, Churchill and its Indonesian partners, have initiated a review of three primary means of financing the EKCP:

(1) a "stand-alone" strategy based on financing the Project through a combination of equity and Project debt; 

(2) a joint venture with a strategic partner combined with Project financing; and 

(3) the part sale of the Project once its true value can be demonstrated through the feasibility study.

The size and the prospects of the EKCP have already captured the interest of a number of Groups that have either come to the site to conduct due diligence or made non-binding offers for the Project. Churchill can give no assurance on whether this will lead to a firm offer or whether any potential offer will be to the satisfaction of Churchill. The Company also continues to have ongoing discussions with a number of investment and project financing institutions.

CHURCHILL'S OTHER ASSETS

In addition to the EKCP, Churchill has maintained a 70% interest in the Sendawar CBM Project in East Kalimantan along with its Indonesian partner RMU which owns the remaining 30%. The CBM Project covers more than 800 square kilometres of prospective ground in close proximity to the operating coal mines and with potentially more than 5 trillion cubic feet of natural gas. Churchill and RMU have initiated discussions regarding the eventual development of this project with international oil, gas and CBM companies for the provision of technical assistance, off-take agreements and potential joint ventures.

Churchill recently divested most of its interest in the South Woodie Woodie Manganese Project in Western Australia, though it retains a 20% direct equity investment in the project, as well as a 25.51% interest in Spitfire Resources, the ASX-listed Company that purchased the Company's stake. This divestment was in line with Churchill's strategy to focus on Indonesian coal production while retaining exposure to these promising manganese tenements.

CORPORATE 

FINANCIAL SUMMARY

The loss for the year was US$14,089,527 or (20.76c) per ordinary share (2008: profit US$ 794,537 or 1.42c per ordinary share). 

In this financial reporting period the Company's functional currency changed from Pounds Sterling to United States Dollars. Concurrent with this change in functional currency, the Group adopted the United States Dollar as its presentation currency.

During the year the Company committed approximately US$ 7.5 million to exploration and evaluation expenditure mainly at the flagship East Kutai Coal Project reflecting the ramp up in exploration and drilling which has resulted in the release of the significantly increased JORC compliant resource at the project.

Significant expenditure items during the period include:-

The balance of operating expenditure is in line with the Company's stage of pre-development and includes increasing its project and technical staff resources in Indonesia during the year.

In May 2009 Churchill completed a £5 million capital raising, though a share placement which will allow the Company to continue with its feasibility study and accelerate its development programme at the East Kutai Coal Project. The Group's balance sheet at 30 June 2009 and comparatives at 30 June 2008 are summarised as follows:-

Non-current assets did not move significantly during the year as the investment into exploration at the East Kutai Coal Project was offset by the impairment in the carrying value of the Sendawar project and investment in Spitfire Resources Limited.

The reduction in current assets resulted from the cash invested into exploration and evaluation expenditure, administrative overheads and the impact of the decline in the pound sterling compared to the United States Dollar. 

Churchill's overall financial position remains strong and the Company has the necessary cash resources, totalling USD 10.9 million at the end of June 2009, to continue to develop the East Kutai Coal Project.

In summary, Churchill remains committed to its core value of creating shareholder value. The next year will be an exciting one for the Company as the East Kutai Coal Project accelerates toward production.

Paul G Mazak

Managing Director

Churchill Mining Plc

Competent Person's Statement

The information in this Report relating to Exploration Results, Mineral Resources or Ore Reserves and technical matters is based on information compiled by Mark Manners who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Manners is employed as a Principal Geologist by SMG Consultants Pty Ltd and has over 20 years experience in exploration and mining of coal deposits. Mr Manner's consents to the inclusion in the Report of the information as presented. He has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the type of activity described to qualify as a competent person as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves". 

In accordance with the AIM Guidelines I am a qualified person that has reviewed the technical information contained in this 2009 Annual Report.

   CONSOLIDATED INCOME STATEMENT

For the year ended 30 June 2009

   BALANCE SHEET

As at 30 June 2009

The financial statements were approved and authorised for issue by the Board of Directors on 21st October 2009 and were signed on its behalf by:

Paul G Mazak

Director

CASH FLOW STATEMENT

For the year ended 30 June 2009

NOTE 1: (LOSS)/EARNINGS PER SHARE

NOTE 2: INVESTMENTS IN ASSOCIATES

The following entity meets the definition of an associate and has been equity accounted in the consolidated financial statements. As at 1 July 2007 the Group controlled 100% of the issued capital of Spitfire Resources Limited ("Spitfire"). During the prior year the Group's investment in Spitfire was diluted to 40.98% and then to 35.64% at year-end by additional equity issues by Spitfire.

During the current year the Group's investment in Spitfire was diluted from 35.64% to 28.80% by further additional equity issues by Spitfire.

Spitfire Resources Limited ("Spitfire") shares are listed on the Australian Securities Exchange ("ASX") and are classified as a listed investment. The fair value of the investment using the closing prices at 30 June 2009 was $2,514,908 (2008: $4,199,040) based on a closing price of A$0.125 (US$0.10) (2008: A$0.225 (US$0.22).

The ordinary shares held in Spitfire are held under a lock-in (escrow) agreement until 12 December 2009. The share of associates loss recognised during the period is $328,361 (2008: $207,566)

Summary of audited financial statements of associates at 30 June 2009 and converted from AU$ to US$ at the closing rate are as follows:

Included in the total assets of Spitfire Resources Limited is cash balances of $3,841,167 (2008:$5,329,991).

NOTE 3: TRADE AND OTHER RECEIVABLES

NOTE 4: INTANGIBLE ASSETS

During the year the Group impaired the original carrying cost for the Sendawar CBM project for the amount of US$5,715,365. Following the award of the Joint Evaluation Agreement in respect of CBM, there was no further use for the KP coal exploration licences purchased in 2006 and they were allowed to lapse. The capitalised costs are no longer validly supported as the original capital cost in no way benefits the advancement of the CBM project and therefore these costs were impaired during the year.

This amount reflects the original cost of the initial KP exploration licenses, prior to the granting of the new joint evaluation license by direct appointment in September 2007.

The Group has a 75% interest in the East Kutai Coal Project ("EKCP"). Under the terms of the co-operation and investors agreements for EKCP with its Indonesian partners the Group is responsible for arranging and co-ordinating all aspects of the project until completion of a Bankable Feasibility Study.

The Group has a 70% interest in the Sendawar CBM project ("Sendawar"). Under the terms of the agreements for Sendawar with its Indonesian partners the Group is responsible for arranging and co-ordinating all aspects of the project until it decides to commit to signing a 70% interest in a Production Sharing Contract, once new regulations have been formalised and  are considered workable by the Group.

The Group retains a 20% interest in the South Woodie Woodie Manganese Project. The Group is "free-carried" on its 20% interest until a decision to mine is made in relation to the project.

The value of the Company's interest in exploration and evaluation expenditure is dependent upon:

The continuance of the Company's rights to tenure of the areas of interest;

The results of possible future exploration; and

The recovery of costs through successful development and exploitation of the areas of interest, or alternatively, by their sale.

NOTE 5: TRADE AND OTHER PAYABLES

NOTE 6: COMMITMENTS

NOTE 7: NOTES TO THE CASH FLOW STATEMENT

NOTE 8: RELATED PARTY TRANSACTIONS

The Group had the following material transactions (excluding Directors' salaries and fees) with related parties during the year ending 30 June 2009.

During the year the Group paid Direct Invest Group Limited $480,209 (2008: $405,047) for the consultancy services of Mr Paul Mazak who is a Director of the Company. The amount of $37,125 was owing to Direct Invest Group Limited as at 30 June 2009 (2008: $44,995)

During the year the Group paid Borden Holdings Pty Ltd $16,696 (2008: $42,830) for the consultancy services of Mr David Quinlivan who is a Director of the Company. There were no amounts owing to Borden Holdings Pty Ltd as at 30 June 2009 (2008: Nil).

During the year the Group paid Goldregis Corporation Pty Ltd $88,806 (2008: $185,053) for the consultancy services of Mr James Hamilton who was a Director of the Company until April 2009. The amount of $8,910 was owing to Goldregis Corporation Pty Ltd as at 30 June 2009 (2008: $10,818).

In June 2008, the Company entered into a lease agreement with Borden Holdings Pty Ltd, a related party of Mr David Quinlivan who is a Director of the Company. The lease is for the office at Suite 1, 346 Barker Road, Subiaco, Western Australia. The lease is for a period of three years with a two year option and the terms of the lease are no more favourable than normal market rates. The terms of the lease were reviewed and approved by the independent Directors. The amount paid for the year ending 30 June 2009 was $52,870 (2008: $5,638)

The Key Management personnel disclosures are included in the full financial statements.

NOTE 9: CONTINGENT LIABILITIES

During April 2008 PT Indonesia Coal Development acquired two new licenses as an extension to the East Kutai Coal Project. As part of the purchase price the parent company Churchill Mining Plc is obliged to issue 2 million shares in Churchill Mining Plc to the vendors of the project upon the delineation of a minimum JORC compliant resource of 100Mt of measured coal resource in the newly acquired extension licences.

As at the date of this report the Company has not yet reached the 100Mt measured resources in this newly acquired extension licenses and the share issue by Churchill has not yet occurred. Should the company reach the target and assuming a Churchill share price at 30 June 2009 of 53.2p ($0.88) (30 June 2008: 65p (USD1.29)) then the value of the share issue by the parent company would have been approximately USD 1,760,000 (2008: USD2,592,740). No amount has been recognised in these financial statements during the period.

NOTE 10: POST BALANCE SHEET EVENTS

On 29 July 2009 the Company issued 75,000 shares at an issue price of 20p ($0.33), pursuant to the exercise of share options.

On 26 August 2009 the Company announced that Measured & Indicated JORC Resources at the East Kutai Coal Project ("EKCP") exceeds 1.3 billion tonnes. 

On 1 October 2009 the Company issued 25,000 shares at an issue price of 20p ($0.32) pursuant to the exercise of share options.

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The financial information set out above does not constitute the company's statutory accounts for the years ended 30 June 2009 or 2008, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the company's annual general meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) Companies Act 2006.