Paul A. Graus -

Unique Experiences

1992 - PT Tambang Timah – Advisor to the Board of Directors

1996 - PT Batubara Bukit Asam: Advisor to the Board of Directors.

2010 - Churchill Mining: Chief Financial Officer

2013 - Asia Minerals Corporation Ltd: Chief Financial Officer

2015 - Cross Border Funding: Chief Financial Officer

2018 - Sumatra Copper and Gold PLC: Finance Manager

For many years, as a result of my offshore experience, I have been involved with companies who have faced massive legal and financial problems for various reasons both within their control and outside of their control. This has given me a unique perspective on the issues facing resources investors and the industry in general.

The need for businesses to employ skilled and experienced management working within the resources sector is very apparent from the following factual accounts of the activities of companies with whom I have been employed.

PT Tambang Timah

From 1992, I had the privilege of working in Indonesia with Dr Kuntoro Mangkusubroto who had been appointed head of the troubled state-owned tin producer, PT Tambang Timah. Dr Kuntoro appointed a new team to restructure the company including me. During 1992 / 1994 Timah successfully undertook and concluded one of the largest corporate restructuring projects in Asia reducing staff from 25,000 to 5,600 whilst simultaneously doubling production and reducing costs by 70% without creating significant unrest. Dr Kuntoro was rewarded with the post of Director-General of mining in the (then) Ministry of Mines and Energy. He maintained the position for five years (from 1993 to 1997) during which the Indonesian mining industry thrived. In early 1998, he was appointed Minister of Mines and Energy, one of the few bright spots in President Soeharto’s cabinet, which served for only two months.

PT Tambang Batubara Bukit Asam

Following the successful partial privatisation of Timah and its listing on the London Stock Exchange, in late 1996, Dr Kuntoro in his capacity of Director General of Mines asked me to join the State owned coal mining company, PT Batubara Bukit Asam and assist with their restructuring and possible privatisation.
The Asian Financial Crisis started on 2 July 1997 and Indonesia became the hardest-hit country in the region because the crisis not only had economic but also significant and far-reaching political and social implications.
When pressures on the Indonesian rupiah became too strong, the currency was set to float freely starting from August 1997. Soon it began depreciating significantly. By 1 January 1998, the rupiah's nominal value was only 30 percent of what it had been in June 1997. In the years prior to 1997 many private Indonesian companies had obtained unhedged, short-term offshore loans in US dollars, and this enormous private-sector debt turned out to be a time bomb.
Continued rupiah depreciation only worsened the situation drastically. Indonesian companies rushed to buy dollars, thus putting more downward pressure on the rupiah and exacerbating the companies' debt situation. As the government of Indonesia was unable to cope with this crisis it decided to seek financial assistance from the International Monetary Fund (IMF) in October 1997.
PTBA’s sales contracts with the Government of Indonesia were all negotiated in Rupiah and its maintenance and other contracts often in USD’s. Political instability overcame the country and Jakarta was plagued by major riots. The closure of the 16 banks triggered a run on other banks. Billions of rupiah were withdrawn from saving accounts, restricting the banks' ability to lend and forcing the Central Bank to provide large credits to the remaining banks to avert a complete banking crisis. The rupiah–US dollar rate was at 2,436 rupiah to one dollar on 11 July 1997 and fell to 16,800 rupiah to one dollar on 17 June 1998.
It was by this time clear that privatisation and restructuring of the company was simply impossible. My family’s safety was also compromised in Jakarta and my contract was concluded in late 1998 and I returned to Australia.

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Churchill Mining

I was offered an employment contract with Churchill Mining Plc on 29 April 2010 and commenced a month later. The project appeared very attractive, a feasibility study concluded in 2010 stated: “The Study confirms the technical and economic feasibility of the Project and demonstrates that it is a world-class thermal coal deposit. • Investment evaluation, modelled over an initial 25-year period, indicates a pre-tax net present • value of US$1.8 Billion (discount rate of 10%), internal rate of return of 21% and payback period • of 7 years • Pre-tax net cashflow in excess of US$500 Million per annum over the first 20 years of capacity • production • Proposed 30Mtpa open-pit mining operation producing high-quality sub-bituminous coal over an • initial 25-year period, although the reserve base would support a much longer mine life” I was appointed CFO and my role was based in Jakarta and I was to assist with the development of the project.
On May 4, 2010 the Regent of East Kutai, (the region in which CHL’s project was to have been developed) issued a decree revoking the Groups Mining licences. This action by the Regent triggered a very complex, protracted and expensive series of events (which are still ongoing) in the World Banks International Centre for Settlement of Investment Disputes. The then Managing Director of Churchill stepped down from his position in March 2011 and I inherited the role of Country Manager and undertook a detailed forensic analysis of events which took place between 2007 and 2010 prior to my commencement. I spent the remainder of my contract interacting with the Groups legal advisers and trying to maintain financial stability and security during the legal process.
Factual Background - Extracted from Formal Tribunal Transcipt A group of seven Indonesian companies—the Ridlatama group introduced the mining project - East Kutai Coal Project (EKCP) Churchill Mining to explore a large coal deposit in the Regency of East Kutai, Indonesia. Churchill invested in EKCP by acquiring all shares of PT Indonesian Coal Development (PT ICD), a company registered in Indonesia. Later, certain companies within the Ridlatama group obtained (fraudulently, as the tribunal later concluded) mining licences for large areas in the EKCP. These companies had Pledges of Shares Agreements and Cooperation Agreements with PT ICD, which would plan, set up and perform all mining operations in exchange for 75 per cent of the generated revenue.
ICSID Concluded: “As to whether the Churchill had taken part in the fraudulent scheme, the arbitral tribunal noted that the record pointed “towards Churchills Indonesian partner Ridlatama rather than the Claimants in relation to the forgery of the contentious documents”. “The author of the forgeries and fraud is not positively identified (although indications in the record all point to Ridlatama possibly with the assistance of a Regency insider).
Notwithstanding, the seriousness, sophistication and scope of the scheme are such that the fraud taints the entirety of the Claimants’ investment in the EKCP. As a result, the general principle of good faith and the prohibition of abuse of process entail that the claims before this Tribunal cannot benefit from investment protection under the Treaties and are, consequently, deemed inadmissible.” In 2016, the Tribunal concluded: “However, because Churchill's due diligence investigations conducted at the time of acquiring the East Kutai Coal licenses were insufficient, it has dismissed the damages application.” The bottom line was that whilst Churchills licences and permits issued during 2009 were apparently not forgeries, earlier permits and licences were negating the apparent legality of all subsequent documents. My contract with Churchill concluded in September 2012. For the next 7 years, Churchill was embroiled in legal actions through the Indonesian Court system and ICSID.
In April 2019, Churchill appointed Administrators and applied for cessation of trading of its shares on the NEX Exchange following dismissal of the company’s claim for annulment of the 2016 Award against the company which included an adverse US$9.44m cost order.

Asia Minerals Corporation

Asia Minerals Corporation and its subsidiary company Asia Mangan Grup were established to operate a consolidation, marketing, and trading platform for manganese and iron in Indonesia and internationally. It was also planned to explore and develop manganese and iron ore deposits and mining projects and build and operate an alloy smelter facility. Asia Minerals Corporation Limited was incorporated in 2010 and was based in Jakarta, Indonesia. I was offered the position of Chief Financial Officer in May 2013 and commenced shortly afterwards.
Mr Michael Kiernan, (ex Consolidated Minerals Ltd Chief) was the founder of the Group. Unbeknown to me, Mr Kiernan had major problems with the Australian Taxation Office and had been declared bankrupt in Australia in November 2012. That fact was not made known to me until later in 2013. He therefore had no legal capability to manage or be involved with an Australian company. There were also some questions about his ability to manage an Indonesian company. Funding for the developments was obtained through debt and equity injections mostly at that time through Kiernan’s contacts. In fact, I had invested a significant amount also. Notwithstanding the legalities of his Indonesian operations, Kiernan had appointed some great staff and by late 2013, AMG had obtained many of its required licences and permits in Indonesia and had, perhaps prematurely, carried out a ground-breaking ceremony attended by many Indonesian dignitaries.
In March 2014, AMC’s major United States shareholder and others threatened Kiernan with legal action for non-disclosure of his bankrupt status. The internal politics became impossible, external parties became involved, shareholders withdrew financial support and the group ran out of cash and Kiernan left a short while later. A string of events followed resulting in the appointment of a new CEO in early 2015. He resigned shortly after (without notice) and the remaining directors elected to place AMC into Administration.
One major AMC lender and broker entered into a Deed of Company Arrangement to sell the company’s assets but Kiernan had moved into another ASX listed entity and, in effect, adopted the AMC business plan unencumbered by the massive debt accumulated within AMC. AMC’s licences and permits and plant remain unsold. Kiernan was removed a short while later again from the ASX company but they had adopted the new plan and have progressed with the developments. AMC had a cash deficit and no funding available to challenge the Australian company. My contract with AMC concluded in early 2015. AMC’s liquidators were an Australian firm and agreed to go into a DoCA with a former investor who spent well over a year looking for investors and dealing with other legal issues.
I was appointed a Director of the Indonesian Company which in effect had no funding because of the status of AMC. During the ensuing years, many isues were dealt with:
1. Plant and Equipment needed to be stored and secured

2. Legal action for recovery of funds against various parties.

3. Defence against recovery action by external parties
4. Legal requirements and more for preservation of licences / permits
5. documents and data needed to be preserved
....and much more requiring a considerable personal investment in both time and money and which consumed a lot of time in years up until COVID.

Cross Border Funding

Cross Border Funding is an Australian Company which had been developing an iron ore mining and processing operation in Indonesia over e period of a year. After a selection process in August 2015 including visits to proposed sites for operations and discussions with management, I was appointed CFO on a contract basis pending completion of formalities for the establishment of a mining enterprise and employment of expatriates. During my initial month with CBFC, drawing on my previous experiences and working with colleagues introduced to CBFC, we discovered that the whole project was, again, a sophisticated scam orchestrated by the Indonesian partner and, whilst there was potential, none of the legalities needed to build the business had been completed. Sales contracts and other agreements were forged or missing and licenses and permits were not in place. The US based shareholders who had been funding the project withdrew and I ceased working with the group. The Sydney based founders of the group subsequently walked away from the project leaving creditors and investors and me unpaid.

Sumatra Copper and Gold Plc

SUM is an ASX listed company which operated in Sumatra, Indonesia. I commenced with the company after being offered the role of CFO in March 2018 but did not accept the appointment after realising the company's financial condition and remained as a Finance Manager. It was the stated intention of the SUM management team to rebuild production levels and after several years of financial difficulties and planning mistakes to begin to achieve production and sales targets. It became very clear upon my commencement that SUM was facing much larger problems that I expected. Many discussions were had internally about the company’s solvency and ability to continue trading. Production levels continued to decline, lack of cash flow was a major obstacle to all activities and lack of reliable exploration data prohibited further growth in production. The company was simply unable to achieve production targets, in fact actual production wasn’t even close to forecast. Day to day operations at all levels became problematic. Lack of fuel, lack of spare parts, lack of exploration data, many suppliers requiring payment in advance, taxation liability problems, overpriced or non-delivered supplies and unhappy staff plus many more issues impacted on the company’s ability to operate. Large foreign currency loan repayment commitments were the final straw. In August 2018 management decided to cease operations, placed the existing site on care and maintenance and try to sell off whatever assets could be sold. All staff were made redundant and I resigned.

Administrators were appointed in April 2019 and two Directors resigned.

Last revised on March 11, 2019

Paul A. Graus
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