News on Tuesday that Pathfinder Minerals has, after near 8 years, a number of seemingly workable deals on the table in regards to the key licence 4623C in Mozambique looks to, finally, be about to bring to a close this long running saga.

Details of the deals are scant and as such it is impossible to put a definitive value on them at this time. What is clear though and that we have, as largest shareholders, been absolutely adamant about, is that any dilution to current shareholders must be non-existent/minimal. After all, what would be the point of doing a deal to hand over the spoils to new equity providers? See comment HERE from the company on the 10^th April – “The Board’s objective is to deliver meaningful value to current shareholders and minimise future dilution.

In an attempt to put a near term value on the shares post this week’s developments, we posit the following points:

1. As relayed HERE, Africa Focus Group who have been coordinating the licence resolution efforts in Mozambique, have themselves placed a minimum value on the shares of just under 4p when they convert their success fee into equity.
2. Consider that back in 2011 that Plc shareholders, before the licence dispute, had a circa 80% interest in the licence area (adjusted for Cavaco & Veloso’s then stake) and the company was valued at £80m. If we haircut this by say 80% until such time as the deal is concluded, and also ignoring any valuation uplift re the better heavy mineral sands backdrop now relative to 2011/12, we still arrive at a circa 5p per share price.
3. The third alternate valuation route is to simply take the NPV on the project that has just been newly assessed at just over $1.05bn. Assuming a post farm in residual 30% interest in this results in a value of $315m. Based on the current FX rate this is a quarter of a billion pounds. If we halve this, halve and halve again for the risks still attached re completion in order to be ultra conservative, we get to £31.25m. Based on the current share count this produces a 10p per share level.

The fact that the Plc directors were once again more than happy to convert their fees into stock in the modest placings at what was a premium to the pre RNS stock price is, we believe, intended to send a signal to the wider market. This message is clear – given the now very real likelihood of this deal being concluded and the absence of dilution to shareholders in bringing this to fruition, the value curve going forward on this journey looks to be exponential set against the current market cap of just over £6m. These stark facts are why we remain as the number one shareholder.

We suspect as the wheels get put in motion to bring this transaction to completion that the latent value arbitrage will not have gone unnoticed by many other observers. Indeed, if I were the corporate partners/participants alluded to in the RNS of Tuesday I would simply look to take out Plc given the disparity in value between the value on the project and the Plc’s current market valuation in any residual interest. Buy.

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