Battle over huge coal deposit highlights risks in Indonesia

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Indonesia contains some of the world's richest mineral deposits, located tantalizingly close to the markets of China and India, but a court battle over a $1.8 billion coal mine highlights the risks foreign miners face in the country. London-listed Churchill Mining Plc has been in dispute with Indonesia's Nusantara Group for three years over the right to develop the world's seventh-largest undeveloped coal asset. The case has reached Indonesia's highest court and could take years more to settle. The 350-sq-km (135-sq-mile) mine site in East Kutai, a coastal district in East Kalimantan province, is said to contain 2.8 billion tonnes of coal reserves. "It's a big medium to low-grade thermal coal deposit," Churchill Executive Chairman David Quinlivan told Reuters in a telephone interview. "That requires a substantial amount of infrastructure to be able to bring it into production. "But once in production, it will be very much a long-term project -- 50 years or more."

Indonesia contains some of the world's richest mineral deposits, located tantalizingly close to the markets of China and India, but a court battle over a $1.8 billion coal mine highlights the risks foreign miners face in the country.

London-listed Churchill Mining Plc has been in dispute with Indonesia's Nusantara Group for three years over the right to develop the world's seventh-largest undeveloped coal asset. The case has reached Indonesia's highest court and could take years more to settle.

The 350-sq-km (135-sq-mile) mine site in East Kutai, a coastal district in East Kalimantan province, is said to contain 2.8 billion tonnes of coal reserves.

"It's a big medium to low-grade thermal coal deposit," Churchill Executive Chairman David Quinlivan told Reuters in a telephone interview. "That requires a substantial amount of infrastructure to be able to bring it into production.

"But once in production, it will be very much a long-term project -- 50 years or more."

Nusantara Group originally held six licenses in the disputed area. According to court documents filed by Churchill, these lapsed between March 2006 and March 2007. The East Kutai government declared the area open to other companies and Indonesian firm PT Ridlatama received four mining licenses, Churchill said.

Between November 2007 and February 2008, Churchill bought a 75 percent stake in Ridlatama's licenses and spent about $40 million on the project. But after Churchill announced in May 2008 that the project could yield substantial coal, things turned messy.

A few weeks later, the East Kutai regional government granted extensions to the Nusantara Group mining licenses that Churchill believed had lapsed.

The undeveloped and potentially highly lucrative coal mine has since become the subject of a series of legal tussles . But after a March 2011 tribunal ruling in Indonesia, Churchill and minority partner Ridlatama no longer own the East Kutai project.

Photo credit: Churchill Mining

Article continues: http://www.reuters.com/article/2011/10/10/us-indonesia-coal-churchill-idUSTRE79912J20111010