Pathfinder Minerals shares fall with litigation against Mozambican Government likely

Zircon and titanium-focused mining company, Pathfinder Minerals PLC (LON:PFP), announced on Monday that should it fail to reach an amicable arrangement on disputed licences, it will seek recourse to the Bilateral Investment Treaty (BIT) between the UK and Mozambique, signed in 2004.

The news follows a move by local actors in 2011, to take away Licences covering approximately 32,000 hectares of land on the Indian Ocean coast of the Zambezia province of Mozambique, from Pathfinder Resources. In the company’s view, the Government of Mozambique has acted improperly by allowing this to occur, without its knowledge or consent. And in which case, it says, the action to remove its licences ‘had no legal validity’.

In 2014 the Group said that it was advised that it has a valid claim under the terms of the 2004 BIT that would ‘most likely succeed’ and that the most most likely outcome of successful litigation proceedings would be the return of Licences to its control as well as a cost award in its favour.

In 2015, Pathfinder Minerals served a Notice of Dispute under the BIT on the Government of Mozambique. Having demonstrated that that all legal avenues in the UK and Mozambique have been exhausted – including the Mozambique Supreme Court’s rejection of the Company’s rejection of an English High Court judgment – the company will now continue to attempt diplomatic resolution before commencing litigation proceedings.

Members of the Board have met with the UK Government to seek support for their diplomatic efforts. Should these fail, and in preparation for formal proceedings, the company has performed an analysis of its likelihood of success, and its Board has commenced discussions with prospective litigation funders.

Considering a benchmark for a potential claim, a 2019 Scope Study conducted by independent technical consultants estimated: “pre-tax net present value at a 10 per cent discount rate of US$1.05 billion; with projected annual revenues of US$323 million over a mine life of 30 years; and a project internal rate of return of approximately 25 per cent.”

Speaking on the strategic update, Peter Taylor, Chief Executive Officer of Pathfinder, commented:

“Having satisfied all conditions prior to initiation of BIT proceedings, and exhausted attempts to negotiate an amicable resolution with the Former Local Partners, Pathfinder has no option but to look to the Government of Mozambique to put right the transfer of the Licences 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 Licences which, in turn, is expected to deliver substantial associated social and economic benefits to the region through employment, infrastructure, royalties and taxation.”

In anticipation of the expected return of the Licences to the company’s control, the Group has engaged with prospective partners whose financial and technical capabilities may aid in the future development of the licences.

Following the news, Pathfinder Minerals shares are down by over 22%, at around 0.52p on Monday afternoon 02/11/20. This is well short of its year-to-date high of 0.98p, but ahead of its nadir of 0.43p a share.

Marketbeat reports that company “insiders have bought more of their company’s stock than they have sold. Specifically, they have bought £276,800 in company stock and sold GBX 0 in company stock.” The Marketbeat community has a 54.12% “underperform” rating on the stock.