By Dr. Michael Green

Pathfinder shareholders woke up to an early Christmas present this morning in the form of a cracking announcement which provided an update on the company’s dispute concerning the heavy mineral sands mining concession in Mozambique. This is concession 4623C which was stolen from the company by sleight of hand ten years ago.

The latest news looks to be encouraging as Pathfinder seems to have started to get all its ducks in a row concerning the referral of its case to the International Centre for Settlement of Investment Disputes (ICSID) under the Mozambique – United Kingdom Bilateral Investment Treaty (2004).

The completed preparatory work includes the development of a detailed budget and timeline for claimant costs, the identification of the company’s litigation team, and independent professional analysis of valuations for differing successful outcomes at an ICSID tribunal. All this info has gone into a briefing pack to be studied by institutional litigation funders who would fund the claim with fees payable only in the event of Pathfinder getting a successful result.

No corners have been cut here as the briefing pack is the work of the company’s solicitor Travers Smith LLP and uses detailed valuation mechanisms determined by Versant Partners LLC. Investors won’t get to know the detail behind the valuation, but Versant analysis has assessed a range of successful scenarios with valuation ranges from a minimum of US$110 million for an ex-ante damages award through to US$1,500 million for an ex-post damages award.

The Versant valuation supports the US$621.3 million of estimated losses, detailed by the company in an announcement back in April 2021, that has been notified to the Government of Mozambique. Pathfinder is confident in its position, but as in all these situations there are no guarantees that this, or any, amount will be recovered, should the company refer the matter to the ICSID. But the wheels seem to be in motion for a lawsuit where the ultimate prize is US$1.5 billion.

At the time, CEO Peter Taylor was quick to point out that “A huge amount of work over recent months has gone into advancing our position with respect to a potential claim under the Treaty. With independent professional analysis supporting a range of high value award scenarios, and legal counsel attributing a favourable prospect of establishing liability on the part of the Government of Mozambique, a claim under the Treaty is now a very likely course of action. While this was never our preferred path, and we remain open to alternative solutions with the current Licence-holder, we believe we have strong prospects of recovering very significant monetary damages through this process.”

Intriguingly enough Peter Taylor also went on to mention the multi-project strategy, commenting that “In the meantime, we believe Pathfinder can pursue other opportunities in parallel to further our multi-project strategy. To this end we are looking at a range of mineral projects including graphite and lithium where we believe we can create value while advancing the litigation strategy.”

We commented back in May 2021, that Pathfinder, with now improved management, was seeking to deal with legal matters using an iron fist with rather less legal niceties. All the litigation surrounds mining concession 4623C, that Pathfinder lost through some jiggery pokery way back in 2011. The company asserts that the Mozambique government acted improperly in transferring this licence away from Pathfinder through a transfer which was defective under Mozambique law and are now prepared to take the government to court.

In December 2020, investors learnt that the title holder of the mining concession 4623C, as set out in the Mozambique Mining Cadastre Portal, had changed to TZM Resources S.A. Since that time Pathfinder’s solicitors had written to TZM to place it on notice that a dispute is underway regarding the ownership of the Licence and that, without an acceptable resolution of the dispute with the Government of Mozambique, Pathfinder intends to refer the matter to the ICSID. A successful treaty claim against the Government of Mozambique in respect of this mining licence should frighten TZM or any others off from attempting to develop this licence.

Up for grabs is a huge prize as this ex-BHP Billiton mineral sands project is potentially world class. In all, BHP invested US$29 million on drilling/infrastructure to prove up an impressive resource in the mid-1990s. Back then, commercial circumstances did not merit future development. But now, Pathfinder is set to benefit from improved demand for ilmenite, the pigment for brilliant white paint.

Importantly, Pathfinder’s project lies just 50km from Kenmare’s Mona Mine which in truth looks to be the natural buyer.

At this stage, we must point out the simply huge disconnect between Pathfinder (with a paltry £3 million market cap), the estimated value of this mineral sands project and that of Kenmare Resources. Being potentially world class, it is not hard to put a big valuation on this project. The 2019 updated Scoping Study determined an NPV(10) of US$1.05 billion and now the prize at stake in the dispute has been determined to be US$1.50 billion.

US$1.05 billion and US$1.50 billion divided by number of shares in issue at the current time (531 million) equates to 149p and 214p respectively. The minimum ex-ante damages figure of US$110 million works out at 16p on the same basis.

We initiated coverage of Pathfinder in April 2020 when the stock was trading at 0.525p with an initial target price of 7.23p and a Conviction Buy stance. At that stage we were excited that Pathfinder was in an enviable position of being on the cusp of a journey which could create material shareholder value. Now with the stock at 0.55p, we are more than happy to reaffirm our positive stance.

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