Target price of 7.23p18 Dec 2020 12:29
Current Price: 0.425p
Market Cap only £1.6m
"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..."
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