Pathfinder is no stranger to litigation, but it looks as though legal matters could now be shifting up a gear or two. This is to ensure that the company, finally, regains Mining Licence 4623C that it lost through some jiggery pokery back in 2011. Basically, 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 – a step change in the company’s strategy.

Hurrah, the gloves are off! This has been a long time coming. However, firstly, Pathfinder will seek to engage further with the government in an attempt to recover the licence and advance its development alongside an as yet unnamed strategic partner. But, if this does not work, the company intends to seek recourse via the Mozambique – United Kingdom Bilateral Investment Treaty (2004) avenue with the support of litigation funders. Legal advice that Pathfinder has been provided with seems to make for good reading as the likely remedy from successful treaty litigation would be nothing less than the return of the licence to the company’s control.

This is really good news and we draw certain parallels with Ascent Resources which is taking on the Government of the Republic of Slovenia concerning the company’s unfair treatment in that country and how its investment of more than €50 million in the Petisovci field has been damaged. Ascent’s disputes have arisen under the UK – Slovenia bilateral investment treaty (BIT) and the Energy Charter Treaty (ECT). At the back end of July 2020, Ascent submitted a Notice of Dispute which got the legal ball rolling. Lo and behold, four months later we got the news that Ascent was entering into direct negotiations with the Republic of Slovenia. Such action had brought the Slovenian government to the table and also helped catalyse a three fold increase in Ascent’s share price.

At the time of this latest announcement , Peter Taylor, Pathfinder’s CEO was quick to point out that  “Having satisfied all conditions prior to initiation of BIT arbitration, and exhausted attempts to negotiate an amicable resolution with Veloso/Cavaco, Pathfinder has no option but to look to the Government of Mozambique to put right the transfer of the Licence which we believe was unlawful.  It remains our preference to avoid treaty litigation by resolving the dispute through constructive dialogue with the Government of Mozambique and to conclude such resolution swiftly. Such a timely resolution would allow us to resume development of the Licence which, in turn, is expected to deliver substantial associated social and economic benefits to the region through employment, infrastructure, royalties and taxation.”

The Pathfinder Saga has been dragging on for years now and, it is fair to say, has probably taxed the patience of most investors. The company originally acquired a large African mineral sands project in Mozambique back in 2011 for £34 million via a paper reverse takeover transaction.  These licences were misappropriated, leading to the company spending the next 9 years trying to regain control of them through the courts. Prolonged lack of any success and a dwindling share price resulted in shareholder action for boardroom changes spearheaded by ourselves. Now, headed up by former Alien Metals CEO Peter Taylor, it could finally be that Pathfinder might be making serious progress at long last.

Up for grabs is a big prize as this ex-BHP Billiton mineral sands project is 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.

Attention should be drawn to the fact that Pathfinder’s project lies just 50km from Kenmare’s Mona Mine which looks like being a natural buyer in the fullness of time. In fact, we have long held the view that Pathfinder bears all hallmarks of being Kenmare Mark II. Truth is that Pathfinder’s neighbour has more than a decade of operating experience in Mozambique and its close proximity creates unparalleled upside potential for both parties – with an NPV of over $1bn, an acquisition by Kenmare would be seriously value accretive for it.

At the moment, there seems to be a huge disconnect between Pathfinder with a paltry £3 million market cap and the estimated value of this mineral sands project and that of Kenmare Resources. Being potentially world class, it is easy to put a big valuation on this project and particularly so now that the prospect of its licence return return really is on the horizon – set against the current share price, the potential returns are mouth watering should this avenue prove successful. The 2019 updated Scoping Study determined an NPV(10) of US$1.05 billion. Neighbour Kenmare currently has a market cap of £314 million and an EV of £353 million. So, there is plenty of opportunity for Pathfinder to really benefit from the big uplift in value seen in mining projects in the early stages to smartly push the project up the valuation curve.

We estimate the claim value to be in excess of £100m and ascribing a 60-70% deemed probability of success by potential litigation funders and circa net 70% payout to Pathfinder would give a potential end realisation of approaching £70m. Of course, as the Strategic Review RNS of this morning alludes to, the most likely outcome is a return of the licence – this is estimated to be worth anywhere between £30-£50m at its present stage pre on the ground operational investment. Set against a £3m market cap we’ll leave others to work out just what the upside is here should this avenue prove successful…

One further point that the market appears to have completely overlooked is the High Court judgement cost award that sums to approx £1.7m – as the largest shareholders we are now pressing for the collection on this and indeed are able to aid if necessary. We have zero appetite for equity raises at anywhere near this price. Should even a fraction of this award be realised through debt factoring/selling the debt on then this should be more than sufficient too see the company through quite aside from a litigation funding receipt for a material period of time.

We initiated coverage 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 were excited that Pathfinder was in the an enviable position of being on the cusp of a journey which could create material shareholder value. Now with the stock at 0.775p, we are more than happy to reaffirm our highly positive stance and remain a supportive, and the largest, shareholder with an eye on avoiding any dilution at any semblance of the current stock price. Buy for those with risk appetites looking for the potential of Eurasia Mining type life changing returns. We believe Peter Taylor is the real deal and means business.

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