Shares ofChurchill Mining(LSE: CHL) have jumped by as much as a third today on news that the company may be close to reaching a settlement with the Indonesian government over the disputed ownership of a 350 sq km mine site in East Kutai.
Churchillsays the resource is worth around $1.5bn. The company has spent more than $10m on its legal bid against theIndonesian government, claiming that it had been unfairly stripped of its licences and accused of fraud.
Churchill spent $67m onexploration and feasibility studies for itsEast Kutai Coal Project, but during 2010 the projects four development licences were cancelled.
The Indonesian government revoked the licences claiming that Churchill, along with its development partner, had forged documents and undertaken exploration activities without a licence.
And since 2012, Churchill has been tied up in aninternational arbitration battle regarding this dispute.
As Churchill claims that theEast Kutai mine is worth around $1.5bn, this dispute is certainly worth the money. According to the available figures, East Kutai is one of the worlds largest coal prospects.
It is estimated thatEast Kutai contains2.73bn tonnes of coal reserves around 50% of Indonesias estimated coal reserves and enough to meets the countrys energy demands for seven years.
Over the past week, there have been signs that Churchill is moving closer towards a settlement with the Indonesiangovernment.
Indeed, last week the government retracted itsallegations of fraud against the company andreports suggest that an open channel of talks has commenced between the two parties.
Previously, it was expected that a settlement wouldnt come before the end of 2016 but now, one source has suggested that a settlementis just around the corner.
Churchills shares have gained around 200% year to date off the back of these rumours.
By Churchills estimate, the value of the East Kutai is around $1.5bn. So, if the company does come to a settlement with the Indonesian government, the miner could be set for a big payoff. City analysts estimate that the payoff could be in the region of $1.3bn.
With a possible settlement payout of $1.3bn just around the corner, Churchill is a binary bet.
If the company reaches a settlement with the Indonesian government, its set to receive a cash lump sum, which, if City estimates are to be believed, could total around $9.70per share. Or, in sterling terms, approximately 670p per share 1,333% above present levels.
However, if Churchill fails to reach an agreement, the company could be left high and dry. The companys cash balance has dwindled over the past four years to only 3m, down from 22m four years ago as the drawn out legal battle has sapped resources.
High risk, high reward
All in all, Churchill is a high-risk/high-reward play.
Even after recent gains, if the company reaches a settlement with the Indonesian government, Churchills shares could rocket higher. Although if Churchill fails to negotiate a deal, theres a chance the company could go out of business.
So, Churchill’s certainlynot a company that’s suitable for widows and orphans.
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