July 24, 2019 | Posted by

It seems that there has been a collective disbelief amongst PFP shareholders in the now likely outcome to the dialogue  of recent months with General Veloso post yesterday’s AGM. As an attendee we have been asked to comment on that meet.

Firstly, the resolution (8) that was voted down was the disapplication of pre-emption rights. We spearheaded the vote against this as we are not in the business of funding PFP in decent part this last year and leaving the slightest risk of a non participatory placing/equity raise on our/existing shareholders part. Do we believe the BoD were planning this? No. However at 46 years young and an involvement in this “game” for near 30 of those years I have personally learnt to trust nobody with such discretion. One only has to look at the number of AIM mining companies that dilute, dilute, dilute with abandon.

Taking the BoD’s prior public record comments and the Chairman Henry Bellingham’s reiteration today that existing shareholder dilution minimisation is paramount, the voting against Resolution (8) is a big plus for all shareholders. If/when monies are needed to be raised in future, existing shareholders have first rights.

The real takeaway’s from the AGM are in fact as follows:

  1. Dialogue with the Veloso’s has never been as strong.
  2. As previously announced, and contrary to a seeming misconception amongst many shareholders/commentators even though this has been publicly announced (see this RNS HERE), PFP DOES have a framework agreement with the Veloso’s/Pathfinder Mozambique SA. What the BoD are doing are working through the mechanics to conclude this in shareholder’s best interests with the least risk. Many were/are not aware of this. The issues to address are funding and closure of the agreement with all parties.
  3. The Mozambiquan Government does want this matter concluded, and likely concluded soon, ideally ahead of the elections in October. This is very important and gives an idea of timescales that all parties must work towards now. That is less than 3 months away.
  4. There is a very real possibility that the Mozambiquan Supreme Court may in fact finally recognise the High Court ruling and which will have some materially positive implications for the Plc. The market has not remotely priced this in, as in such circumstances, if in the final analysis the licence reverts to Plc, the net cost is likely to be much less than under a settlement negotiation. This concentrates all parties mind in country – the Govt, the Veloso’s and other interested parties.
  5. The AFG agreement expires in just over 2 months. With a likely new NED appointment imminent, he is specifically tasked to, in the words of Henry Bellingham and John Taylor, “hold to account” the progress and likelihood of conclusion of that agreement. If within the visible horizon of the key parties expectation for a conclusion this does not look deliverable then an alternate and viable route for an expedited resolution will be progressed in tandem. Again this is public knowledge from the late April RNS, see wording here – “The Board is evaluating multiple transaction structures, taking into account commercial and regulatory factors, through which the Company could hold its interest in the Licence and deliver value for shareholders. While the optimal structure of the Proposed Transaction remains under evaluation, the Board is pleased to relay that the principle of a Proposed Transaction has been agreed between Pathfinder and General Jacinto Veloso who, with his family interests, is a 50 per cent shareholder in the entity to which the Licence is currently registered.”

Finally, the real point that many are forgetting here is that, contrary to some ill informed online commentary ref motives on certain parties parts, NOBODY gets paid unless a deal is not just agreed but CONCLUDED. John Taylor’s options are at 2.75p, AFG’s cash to equity subscription price is a shade under 3.6p, the balance of the BoD’s options are in excess of the current stock price and perhaps most importantly, the Veloso’s have made clear that a resolution must involve PFP Plc and so they also do not get paid without a conclusion with us.

With the stock back at 1.5p (almost 50% below the recent placing price) and upside on a deal being measured in multiples of the stock price, the risk/reward profile is, in our opinion, much more attractive now than it was 2 months ago. Levered and hot money entered the stock expecting an imminent deal conclusion and their “singed fingers” in exiting provides this renewed opportunity. Coupled also with the warrant exercises of recent weeks there is no need for a placing for many months from what we can see. Recall that the economics of the asset are an NPV(12) of over $1bn and a 30 year mine life. Set against a market cap of under £5m the prize at hand is once more glaring.

The contents of this piece lay bare why we are poised once again to take advantage of one of AIM’s most compelling asymmetric risk/reward offerings. One where we have a newly constituted Board focused on concluding the “deal framework”, a solidified balance sheet, dilution risk negated ref today’s resolution vote down and a pressing time criticality on the counterparts in Mozambique to conclude this.

For all these reasons we remain Buyers of Pathfinder Minerals. Our sense is a breakthrough that brings this to a long awaited resolution is now close.


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