Litigation
This idea was shared by Sara.
MON is litigating against Tanzania and trades at a 90% discount to the claim value. Two very similar but more advanced peer litigations suggest that positive developments in the litigation are quite likely and could lead to significant share price appreciation in the short term. This is a very similar opportunity to the recently highlighted Idea Elsewhere: WINS.V.
The whole setup turns around 3 public junior miners that have been litigating against Tanzania for expropriating their mining licenses – Indiana Resources (IDA.AX), Winshear Gold (WINS.V) and Montero Mining and Exploration (MON.V). Though separate litigations, the cases are very similar:
- The litigations are based on the same legal theory (retention license expropriation) within the same geography.
- All three companies also share an identical hearing arbitration agency (ICSID) and location (Washington, DC).
- All of the companies have been represented by the same legal team (Boies Schiller Flexner), including the same lead attorney.
Here’s a quick overview of each legal case:
- Indiana Resources (IDA.AX) – had a claim size of US$95m. In July, the company won arbitration against Tanzania and was awarded US$114m or 120% of its requested damages. Tanzania is currently appealing the decision. IDA currently trades at 80% discount to its original claim size and 83% discount to the award size.
- Winshear Gold (WINS.V) – claim size of C$130m. In September, WINS announced that it reached a settlement with the Tanzanian government, yet no further details have been published so far. The company trades at 85% discount to its requested damages.
- Montero Mining and Exploration (MON.V) – claim size of C$90m. MON’s hearing at ICSID arbitrage agency is scheduled for December 4-8. The company trades at 90% discount to its claim value.
All three companies trade at massive discounts to claim values, which is understandable given recoverability and capital allocation concerns. Even if the companies manage to win litigations or reach settlements, it will probably not be easy to squeeze out cash from the Tanzanian government. There is also some uncertainty on how the recovered proceeds would be used by companies and if shareholders would ever see any of it.
However, I believe the market is signaling where the price of MON shares would move if the company was to receive a settlement award like WINS or win arbitration like IDA. Given the similarity of these cases, either of these outcomes seems very likely for MON and would result in a significant upside. If MON’s discount to claim value shrinks from the current 90% to 85% (in line with WINS), the stock would appreciate by 45%. At an 80% discount to claim value, the upside would be close to 2x. Hearings for both IDA and WINS were held in February 2023. Assuming a similar timeline, a potential catalyst for MON (settlement or court decision) could be expected by mid-2024.
The outcome of MON’s litigation will not be determined solely by the developments in its own case. MON’s discount and share price will also be strongly correlated to any news in peer litigation cases. All eyes are now on the anticipated release of WINS settlement details. The announcement of the settlement came out relatively soon after the IDA’s court win, but it is quite peculiar that the terms haven’t been announced yet with nearly a month having passed by. This might be an indication that settlement terms are worse than what the market is expecting or that Tanzania’s government is still negotiating with the other parties, or anything else. Basically, no one knows why there is a delay, but the market does not seem to be excited by this uncertainty.
It is pleasing that Tanzania has moved swiftly to lodge their request to annul the Award instead of waiting the full 120 days which was available. Indiana remains extremely confident of its position and an initial review by our legal representation suggests Tanzania will not be able to meet the requirements for the annulment
Interestingly, IDA shares trading was halted yesterday upon some kind of pending announcement to be released on or before Monday (October 16). Thus, we might hear something regarding the appeal or potential settlement in the next few days.
Overall, there are multiple potential catalysts and ways to win here and the potential upside can be massive. However, in the worst-case scenario, where all companies lose their litigations, MON would likely drop close to zero, where it was trading earlier this year before positive news on IDA’s court decision. Besides the litigation claim, MON only has one very early-stage copper-molybdenum exploration project that is likely not worth much.
So this is a short-term bet that we will see some positive turn of events with any of the three litigation cases and this would in turn positively impact MON’s share price. The latest developments suggest it’s likely.
16-Oct-23 – IDA was halted because they are conducting a capital raise (indianaresources.com.au/wp-content/uploads/2023/10/Suspension-from-Quotation.pdf)
It appears this quick pitch aged really well with Montero stock down 37% on Monday. All the price action was driven by the disclosed terms of the related WIN litigation case. I am really glad no one had a chance to jump on this setup at Friday’s prices. But at least the pitch was correct on this:
With this new information and with the stock down materially, I am sharing calculations on today’s MON setup.
– Winshear settled for the gross amount of US$30m or US$18.5m after funding/legal costs. Gross proceeds are equivalent to 32% of the claim value with legal/funding costs consuming 40% of the award. The whole amount has already been paid.
– WINS currently trades at a 27% discount to net proceeds while management is looking “at various options available to it before deciding on what to do with the funds”. The market clearly does not expect these funds to be distributed to shareholders.
– I do not think MON can expect better settlement terms than WINS. And I also do not think that the stock will trade any better following the settlement.
– MON has a claim of C$90m, at similar terms to WINS this might result in C$28m gross settlement amount or C$17m after funding and legal costs.
– Deducting C$1m in liabilities and assuming a similar discount to net proceeds, would result in MON market cap of C$11.7m or C$0.30/share.
While this figure is materially above the current MON share price of C$0.145, it is not yet clear:
– When and if MON will reach a settlement – might happen before the Dec hearing dates or by mid 2024 if similar timeline as for WINS is followed.
– Whether it will be done at the same discount to the claim value – but this should still be a good reference point.
– Whether funding and legal costs split will be the same as for WINS – but as both companies are represented by the same lawyers and claim/settlement amount is comparable, it is probably fair to assume the same 60%-40% split. Both companies are using third party funders (different ones) to finance the litigation.
– Whether MON will trade at the same discount as WINS after the settlement. WINS has a market cap of only C$5.5m, hard to see the company continuing to trade at these levels if the net proceeds of C$24m are announced. Even if the whole amount will eventually be wasted by management, the market is likely to react positively to settlement announcements.
Overall, the uncertainty for this case is now slightly lower (as we now know WINS settlement amount) and the share price is also 37% lower. So IMHO the situation became a bit more attractive than last week. However, the risk of a donut remains.
What I read is WINS only got 18mm USD after fees, but for some reason the announcement includes an after-fee figure in CDN as well.
Thanks, corrected the currency in the comment above.
MON.V case continues to move in tandem with WINS announcements. Yesterday, WINS declared a better-than-expected capital return of C$0.25 per share, after which MON shares jumped by 6.4%.
https://finance.yahoo.com/news/winshear-pay-cdn-0-25-120000012.html
I’m struggling to pull the trigger on this. If I understand it correctly if they settle they will probably be worth 30 cents, and if they go through with the hearing they could be awarded up to $1.50/share. The problem is that if they settle we don’t know if they will return any capital to shareholders at all. And if they win big in arbitration Tanzania will appeal and it might take a very long time for them to get paid, and they still might have to settle at a discount. And there is a chance they lose in arbitration.
Its mostly a bet on price action, which I abhor, but this seems like the most certain situations I’ve seen to make that type of bet. But still I sit on my hands.
Positive update on IDA’s litigation (which is also positive for MON).
Litigation for the award annulment still continues, however, ICSID has recently issued a highly favorable decision on the continuation of stay of enforcement. If Tanzania wants to keep the stay of enforced and continue the litigation, within 45 days it must provide a written government-backed undertaking to IDA that in case the award annulment is not granted, Tanzania will comply with the award terms and will be able to make the payment. Tanzania must also undertake that it will not attempt to hijack the award payment by further scrutinizing it in the domestic courts, etc.
If the undertaking is not given, Tanzania must at least provide financial security for the Award payment via a bank funding guarantee or a funded escrow account with a reputable international bank with no principal establishment in Tanzania. If these conditions are not satisfied, ICSID will lift the stay of execution allowing IDA to start the enforcement process.
IDA has also shared expected litigation timeline – might take up to mid-April’24 until the decision on the annulment is made.
IDA’s CEO remains confident Tanzania will not meet the requirements to justify the annulment:
IDA is currently trading at 80% discount to the award amount, which also accrues around 10% annual interest. The company’s market cap is now at US$23m vs US$113m award plus US$4m costs. Interest accrues at around US$1m per month.
It’s not clear yet whether MON will also choose the litigation route like IDA or will settle with Tanzania like WINS. At current prices, however, either option seems to entail a large upside potential. WINS is currently trading at a slight premium to the recent net-settlement value (mostly due to the announced C$0.25/share dividend). But at wider discount levels, MON’s stock would probably double if an identical settlement is reached. If MON were to re-rate in line with IDA’s 80% discount to the award value instead, the potential upside would be even larger.
ICSID decision on IDA’s case https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02735691-6A1178828?access_token=83ff96335c2d45a094df02a206a39ff4
Did you take into account IDA’s partial ownership stake in the claimant entities? The court also refused to award the claimants any third-party litigation funding costs, so that $19-23m will also come out of the final amount.
Why do you think WINS settled at such a low percentage given IDA’s success?
You are correct – IDA’s partial (62%) ownership stake in the claimant entities reduces the discount at which IDA stock is currently trading relative to the claim/award size. That makes the large MON discount even more of an outlier and suggests MON would re-rate materially higher if a positive court verdict is reached. When it comes to litigation funding, yes these would need to be deducted from both IDA’s and MON’s awards, and this was discussed above. However, in comparing MON vs IDA, I am not trying to estimate the net-award amount or final distribution amount, rather I am only looking at the relative discounts at which both companies are trading at different stages of very similar litigations.
WINS settled because they got cash right away whereas IDA now has to force collection of this award and might still fail in doing that. Other than that, I am not able to comment on any differences between two litigation that might have caused the companies to choose different paths.
FYI – Update from MON re: the ongoing arbitration, which specifically mentions WINS and IDA.
https://monteromining.com/montero-provides-update-on-cad-90-million-icsid-arbitration-claim-against-the-government-of-tanzania/
Thanks, so MON is moving forward with the arbitration and the hearing is will take place in Washington DC on December 4 -8.
The hearing, originally scheduled for December 4-8, has been postponed to early January 2024. The reason for the delay is unrelated to the facts of the case itself. Apparently, one of the arbitrators was unable to travel to DC, and as they want to hold the tribunal only in person, the hearing has been postponed. The new date has not been set yet.
https://finance.yahoo.com/news/montero-provides-cad-90-million-195100040.html
Last week Montero announced a 5.3 million share private placement at C$0.15/share (25% below market prices), raising a total of C$0.8 million. Another 1.3 million shares were issued as a settlement for CAD$200,000 debt owed to the CEO. Both sets include four-month lock-ups.
While dilution at below-market prices does not look great, the fresh equity funding and conversion of debt add some confidence to the setup.
MON has just announced the completion of the previously mentioned private placement C$0.15/share. It was also disclosed that the placement was anchored by Jeremy Raper. MON stock has soared 19% since the announcement and is now at C$0.25/share. The company plans to use the proceeds for general corporate and working capital purposes.
https://monteromining.com/montero-closes-800000-non-brokered-private-placement/
nice
Has management said anything about if/how they are planning to distribute the money? Winshear distributed almost everything. Indiana said it’s going to retain US$10-13m.
The share price seems to have settled at C$0.27/share. This is nearly in line with the price target I established back in mid-October, which was based on where WINS, a peer company involved in a similar legal dispute, was valued following its settlement with Tanzania. To anticipate any further upside here, one would have to assume that following a similar settlement MON would also promptly implement shareholder-friendly measures (e.g., returning a significant portion of the cash to shareholders) or that, instead of settling, it would prevail in court at attractive terms, mirroring IDA’s outcome. These higher upside scenarios are far from guaranteed, meanwhile potential downside from these levels has increased substantially. The idea has returned 17% from its original write-up levels and has doubled from its mid-October sell-off levels, when the price plummeted after the WINS settlement terms were revealed.
Does anyone know when the decision on MON’s case can be expected?
By the way, IDA’s situation also seems interesting now. A few positive developments have happened with it over the last months:
– In late December, Tanzania provided an undertaking that it will not challenge the tribunal’s decision if unfavorable, and will pay the full amount of the award within 45 days of the final decision on annulment. As a reminder, ICSID had previously requested that Tanzania must provide such a written government-backed undertaking, ensuring that the country would comply with the award terms and be able to make the payment.
– Earlier this month, ICSID announced that it has struck down two of the three claims made by Tanzania in its annulment application. The remaining claim is that “the tribunal seriously departed from fundamental rules of procedure.” I think that Tanzania’s last remaining claim is unlikely to hold. The tribunal has made a preliminary assessment of this remaining claim and has stated that the allegations are “extremely preliminary, lacking substance, and legal basis.” Also, as noted in a recent IDA write-up by Jaime Bermejo (see link below), ICSID has never granted an objection based on “departure from fundamental rules of procedure”.”
ICSID’s hearing on the annulment is expected to take place in June/July, after which Tanzania would have 45 days to pay the full amount (if the annulment is granted).
So the chances of a favorable final tribunal ruling for IDA seem to have increased. There is also a possibility of a settlement, which I would expect to come much closer to the full value compared to WINS (where the gross settlement amounted to 32% of the claim value).
IDA continues to trade at a wide discount to the award amount. The market cap stands at US$33m compared to a US$120m award (in which IDA has 69% interest), that is also accruing $1m/month.
https://indianaresources.com.au/wp-content/uploads/2024/02/ICSID-Rules-Majority-of-Annulment-Request-Without-Merit.pdf
https://jaimebermejo.substack.com/p/indiana-resources-idaax
Following the private placement there are 45,281,295 shares outstanding.
However, there is also a Stock Option Plan which seems to allow for the issuance of another 10% of shares outstanding. DT, have you looked into the Stock Option Plan and the possibility of a further 10% dilution? I read the terms of it, but found it confusing, hence I’m asking you.
Thanks
Where do you see this? In the latest MD&A, I found that as of September 2023, there were 1.372m options outstanding. All were out of the money and expired in December.
NOTICE OF ANNUAL GENERAL AND SPECIAL MEETING AND INFORMATION CIRCULAR
Dated: November 6, 2023
Page 13 onwards.
The beginning the the relevant extract is provide below for ease of reference:
“Stock Option Plans and Other Incentive Plans
The Company’s Stock Option Plan is the Company’s only securities-based compensation plan. It was adopted by the Board on November 4, 2022 to replace the previous stock option plan, and was last approved by Shareholders on December 14, 2022.
The Stock Option Plan is a rolling stock option plan, under which 10% of the outstanding Common Shares at any given time are available for issuance thereunder. The purpose of the Stock Option Plan is to advance the interests of the Company by (i) providing certain employees, officers, directors or consultants of the Company (collectively, the “Optionees”) with additional performance incentives; (ii) encouraging Common Share ownership by the Optionees; (iii) increasing the proprietary interest of the Optionees in the success of the Company; (iv) encouraging the Optionees to remain with the Company; and (v) attracting new employees, officers, directors and consultants to the Company.
The Stock Option Plan provides that the Board may from time to time, in its discretion, grant to directors, officers, employees and consultants of the Company, or any subsidiary of the Company, the option to purchase Common Shares. The Stock Option Plan provides for a floating maximum limit of 10% of the outstanding Common Shares as permitted by the policies of the TSX Venture Exchange (“TSX-V”).”
Either way, I think a potential 10% dilution in a “lottery ticket” situation is not material.
You really think Jeremy Raper would buy an CAD 800k lottery ticket?
What’s best case scenario upside in this case? Only have a lotto ticket so willing to ride to zero.
If MON get’s an award size in line with that of IDA’s, it could be a multibagger.
Are we still expecting some decision from ICSID around mid-2024?
Last week ICSID Tribunal has rescheduled the hearing to November 25-29, 2024.
https://monteromining.com/montero-provides-hearing-date-for-icsid-arbitration-claim-against-the-government-of-tanzania/
it seems Indiana will settle with Tanzania in the next few weeks. this will leave MON as the last outstanding case of this legal theory, with two settlements – WINS and IDA – in the books. people are speculating IDA will settle at 70-75c on the dollar (no idea here, i am just relaying the chatter on other boards etc). personally i think they should settle higher, but i am open minded.
whilst it is unlikely MON immediately will be able to settle at the same level as IDA, given the near-identical nature of these cases and precedent of a settlement upon ultimate value, i think it is feasible MON trades up substantially to partially close the gap. At 50c on the $, for example, I think MON would be around a 65c CAD stock.
I think it is furthermore reasonably likely that punters in IDA will rotate out of IDA (once the settlement is clear) and into MON, at lower implied % levels, likely leading to a substantial rerating in MON.
Taking 15c on the dollar as a MON.V = zero (whoever may have said it) – so what payout level is this breakeven? More importantly, in what scenario or probability is this possible? Looking for more context but not sure how to word it.
My estimates suggest that MON would need to settle at 25 cents on the dollar to break even at current prices, which aligns with where WINS settled. It’s hard to imagine MON agreeing to a larger discount. However, MON is a very small company and is strapped for cash. The timeline has been extended more than expected. If the hearing is set for the end of November, the decision will likely be made in early 2025? The company will probably need to raise equity before then. I wonder if that could also incentivize management to accept a very wide discount, e.g. 70%, like WINS’.
the burn rate is 100k a quarter and the lawsuit is fully funded. i would rather fund ongoing burn for another 2yrs – via putting in more $$ – than let them settle at a 70% discount, after IDA settles at something much closer to par. that will not be allowed to happen.
the only reason WINS settled at 32c on the $ – not 25c on the $, for clarity, meaning even a WINS-like settlement is upside from here – is because WINS’ major shareholder, Palamina, needed cash pronto for its own exploration activities. that is not the case here at MON, where all the major investors are either financial investors (me) or management.
hi @DanX:
as MON price has moved quite a bit in the last few days, would you please clarify, by “current prices” you mean what level?
Or maybe, for easier reference and discussion, can you state your assessment of MON’s value based on 25, 32, 50, 75 cents on the dollar scenarios, respectively?
hi @puppyeh: would appreciate your further thoughts too! I see that you believe that MON’s worth C$0.65 in a 50c on the $ scenario.
Thanks!
IDA settled for 72% of US$125 million (interest included), consistent with previous expectation/assumption, and shares are trading at A$0.08, 20% discount to puppyeh’s A$0.10 intrinsic value.
If we also apply a 20% discount to MON’s C$0.65 intrinsic value, and apply another 20% discount to allow for time value (MON’s is >1 year behind IDA in the process), then MON should be trading at around C$A0.42 (=0.65×0.8×0.8).
MON is up 20% today, currently trading at C$0.36, while IDA is down 10%. It’s possible that the great migration of arbs from IDA into MON has just started.
Anyone familiar with MXTRF – Schwab’s ADR for MON.V? Looks the same when converting USDCAD, just want to make sure. Lower commissions than IB.
IDA has finally released the settlement terms: Tanzania agreed to pay US$90m, which is just a 5% discount to the original claim value and a 28% discount to the full claim value including interest. Litigation expenses were slightly higher than expected at 26% of the settlement value, and the payment timeline will be a bit more prolonged, with the last tranche due by March 2025. Nonetheless, this is a very positive outcome for a similar litigation ongoing for MON.
The hearing for MON’s case is set for the end of November, with a settlement expected sometime in the first half of 2025 (probably early 2025). At this point, the worst-case scenario seems to be settling on the same terms as WINS (68% discount to the claim and 38% legal fees). This would result in pre-tax proceeds of C$0.40/share versus the current price of C$0.285/share. However, after IDA’s recent win, there’s a good chance MON might negotiate a better deal – settlement at 50% of the claim value would likely result in doubling of the stock.
Curious what keeps you from adding this one as portfolio idea?
Mostly because I do not understand why there is such a wide discrepancy between IDA’s and WINS settlements when the cases seem pretty much identical and the same lawyers were representing the companies. So I am worried there might be other unknowns in MON’s case that I am not even aware of.
MON has generally traded at a pretty good discount to the 2 comps. However, an essential factor beyond the discount percentages is if and how the potential award would be distributed. IDA has been transparent about the amount it will use for exploration, MON to my knowledge has not said anything. While it currently appears to have no business operations whatsoever, it’s due to lack of cash. Back in February it said it aimed to “Create Shareholder Value by Exploration” of its land in northern Chile. All its directors are mining people. MON’s distribution policy will be an important factor in how this plays out.
Agree. This is why Raper’s involvement via private placement as a non mining person is key. It seems like it’s priced as though the proceeds will be torched. My assumption is Raper will ensure that won’t happen. He’s won bigger battles against hostile management so I figure he wouldn’t have gone in for CAD 800k (I think it was) without a level of certainly around getting a return on his investment should the settlement outcome itself be beneficial.
You live by the rape, die by the rape.
Would you please elaborate?
he’s making a (bad) joke about my last name, i believe. but yes – if you don’t think I can get management to play ball on the settlement proceeds here, when the time comes, you should not be involved. as i commented above i believe i will be able to extract a financially rational use of proceeds here, especially given the different context here vs say WINS, but you need to assess that risk independent of my reassurances.
JR – did you buy more?
Toronto, Ontario – August 06, 2024 – Montero Mining and Exploration Ltd. (TSX-V: MON) (“Montero” or the “Corporation”) is pleased to announce that it intends to complete a non-brokered private placement of up to 4,814,815 common shares of the Corporation (the “Common Shares”) at a price of $0.27 per Common Share, for gross proceeds of up to $1,300,000 (the “Offering”).
Montero intends to use the net proceeds from the Offering for general corporate and working capital purposes. Completion of the Offering is subject to certain conditions including, but not limited to, the receipt of all necessary approvals, including the approval of the TSX Venture Exchange (the “TSXV”) and applicable securities regulatory authorities. The Corporation may pay finders’ fees in connection with the Offering in cash or securities, or a combination thereof. The securities to be issued pursuant to the Offering will be subject to a four month and one day statutory hold period from the date of issuance.
He did,
https://x.com/puppyeh1/status/1820833912597381486?t=yZHpQ3d3wIZENutyeLCnNQ&s=19
Nice post on the current MON setup: https://ideahive.substack.com/p/new-portfolio-idea-cef
MON’s previously mentioned private placement at C$0.27/share successfully closed yesterday.
Montero on its PRs talks about 15-17m CAD total cost sunk into the project. The ICSID tribunal in Indiana steered very far from any type of DCF valuation, opting to focus on cost only. So based on this shouldn’t one think the 90m CAD requested award by Montero is very far fetched? In the case of Indiana there had been a lot more cost sunk into the project (I believe around 40m USD).
How are you getting the US$40m sunk costs for IDA? IDA’s ICSID award document states that the incurred project costs were US$17.6m. In this case, IDA’s and MON’s claims would be very similar in size relative to their sunk costs (US$17.6m vs US$95m for IDA and C$16m vs C$90m for MON).
“The Tribunal also notes that the Respondent’s own witness, Mr Mwangakala, in his witness statement concluded that the Claimants and their affiliates had incurred exploration costs of USD 17.6 million on the Project. Such exploration costs would constitute capital contributions.”
https://indianaresources.com.au/wp-content/uploads/2023/08/2023.07.14-Award-Nukl-v.-Tanzania.pdf
By the way, MON’s insiders just got a pretty big options package – 4m options at an exercise price of C$0.33/share, compared to the last close at C$0.335/share. With only 50m shares outstanding, that’s a solid incentive package and shows management is confident there’s more upside ahead.
Plus, they added a new Non-Executive Director to the board on September 5, 2024, and he got 500k options at C$0.34/share too.
You have to read the ICSID award for that… the 40m includes pro rata share of overheads. We actually went ahead and calculated from their financial statements since 2005 and reach a similar 40m USD result. Winshear also had around 40m CAD total cost based on their financial stataments per the video hearings available publicly on the ICSID website (day 3 video 2 – valuation expert witness).
@pmgs So Monetro’s sunk cost number of 15-17m CAD has already included pro rata share of overheads?
Montero’s ICSID claim document is not publicly available so we cannot confirm the basis for the C$90m claim against Tanzania. However, upon a review of Montero’s historical financials in the period from 2008 (when exploration activities in Wigu Hill commenced) and 2018 (when the license was expropriated), it appears that the corporate overheads are already included in Montero’s exploration cost estimate. Adding Wigu Hill exploration costs to the proportional share of corporate overheads from Tanzania (as a % of assets), I arrive at C$15m in total costs incurred at Wigu Hill during 2009-2018 (financials for 2008 are not available), in line with the figure provided by management.
As pointed out by pgms, in the IDA litigation, both sides and the tribunal agreed on the cost approach being the most appropriate for determining fair compensation estimate (see the link below, p. 99). So, assuming the tribunal decides on the same cost multiple as in IDA case, 1.6x, and applies an interest of USD Prime Rate (currently at 8%) + 2% from 2018 through 2025 (when the tribunal’s ruling is likely), the award would stand at c. C$53m or 50% below the claim value.
This would imply that MON is currently trading at a c. 60% discount to the potential ‘realistic’ claim value vs 83% to the C$90m claim. As a reminder, IDA and WINS settled at 17% and 68% discount to award/claim value respectively. So, clearly, the risk/reward now seems less compelling assuming that the tribunal will similarly rely on the cost approach in Montero’s litigation.
Having said that, I continue to think that the situation is interesting:
– MON’s current discount to potential settlement value is only insignificantly above that of WINS, which was forced to settle at a large discount due to the liquidity needs of WINS’s large equity holder.
– MON is represented by the same legal team as in the IDA and WINS cases.
– I would note that at the time of MON’s filing of arbitration claim in May’22, IDA’s arbitration case was already well underway, as both sides had filed memorials and publicly revealed that they were in discussions regarding a potential settlement. This might suggest that the legal team was already aware of the fact that the potential award amount would be based on the cost approach.
– Other positives are the recent placement anchored Jeremy Raper and the pretty sizable options package granted to insiders at C$0.335/share mentioned above.
https://indianaresources.com.au/wp-content/uploads/2023/08/2023.07.14-Award-Nukl-v.-Tanzania.pdf
What share count number are you using?
C$53m/ 50.1 million shares = C$1.06 /share.
MON is currently trading at C$0.32/share, which is 70% discount to C$1.06.
Am I using the wrong numbers?
A typo on my part, the discount to the ‘realistic’ claim value is currently 70%. Thanks for spotting this.
I think I am missing something here – where are my calculations incorrect?
Assuming that MON award will be similar to that of IDA and assuming the court will use the ‘sunk costs + overheads approach + Interest’ approach to come to the award value, I arrive at these figures:
– IDA’s sunk costs + overheads = $56m, award size $109m. (multiplier of 1.95x including interest accumulation 2018-2023)
– MON’s sunk costs + overheads = $15m, at 1.95x multiplier, the award would be $29m only. Adding another year of interest (as MON award will come a year later), I get $32m at most.
IDA’s sunk cost and overheads stood at c. $47m, not $56m ($77m pre-interest award divided by the PEM multiple of 1.6x). Thus, the multiple, including interest accumulation as of July 2023, was 2.34x. At the same multiple for MON and after adding interest from July 2023 through mid-2025 (when the award/settlement is likely), you arrive at a ‘realistic’ claim value of C$43m.
Why the difference compared to my estimate of C$53m? Judging by IDA’s pre- and post-interest award amounts, the tribunal applied a variable US prime rate plus 2% during the period from January 2018 through July 2023 (i.e., compounded annually, the average turns out to be 6.7%), whereas I assumed a flat 10% annual interest rate (i.e., the current US prime rate plus 2%) applied for the entire period. Nonetheless, using the same methodology suggests that MON is currently trading at a 63% discount to claim value, just below that of WINS.
Replying to Idea Hive – I think it is unrealistic to apply a 2.34x multiple to Montero. Again if one reads the award doc in full for Indiana, the 1.6x PEM applied to the sunk costs is driven by a precedent transaction regarding Indiana’s asset. The Tribunal rejected applying precedent transactions from other assets. In the case of Montero there are no relevant precedent transactions on the Wigu Hill project (based on my research) – so I think a 1.0x PEM will be applied. Then, IDA’s pre award interest of 77m grew to 110m by 18 July 2023, or 42% cummulative interest. Add another 20% interest on top for two-three years (getting you to 2025) and you would have for Montero: 15m CAD x (1 + 20% + 42%) = 24.3m CAD award including interest.
pmgs, thanks for additional detail. I was not aware that the 1.6x PEM in IDA’s case was based specifically on the precedent on Indiana’s asset.
Why would the multiplier be dependent on a specific asset? i.e. why expropriation of Asset A deserves 1.6x multiple on sunk costs whereas expropriation of Asset B only 1x multiple?
I would find it very surprising if IDA’s 1.6x PEM would not be regarded as precedent in MON’s litigation (but I have not looked at IDA’s litigation docs in as much details as you did).
Dt, answering your latest reply – this comes from my general understanding of the Tribunal’s stance in Indiana per the award document, they seem to be really focused on costs and restrict the multiples analysis to precedent transactions of Indiana. I think it is because of the high variability in these projects at an early stage and difficulty appraising value. Also ICSID Tribunals do not seem to take previous Tribunals’ work as precedent in the sense that they have deviated from previous decisions in the past (you can see examples of this in the Indiana award but I have also read a couple other cases). In multiple public mining ICSID cases the very large majority base awards on sunk costs without any multiple on top.
DT mentioned “MON’s current price (C$17m market cap) already reflects around 40% discount to this “realistic” claim value” while above Idea Hive says 63% discount above.
To be clear – these are just different interpretations and not wording issues, correct? So there’s no confusion – 40% discount implies 66% upside. 63% discount implies 170% upside.
Actually can we just state PT? IdeaHive $1.06 I think….
Assume the realistic claim/award value is $C43 million, or C$0.79 per share assuming 54.2 million diluted shares.
And then we assume MON will settle with Tanzania at a certain discount (between 17% and 68%, but IDA’s is a better reference) to this claim/award value.
Let’s say the settlement amount will be C$0.63 per share, assuming 20% discount.
And then MON should trade at another layer of discount to the settlement value. I assume the discount will be greater than IDA’s, because MON’s capital allocation intention is more uncertain.
Depending on what you think the “capital allocation” discount should be, the upside from C$0.31 can range between 0% (assuming 50% discount) to 100% (assuming no discount).
Looks like the market is quite efficient, because a 50% discount is actually not outrageous for a company that hasn’t clearly stated its intention about the potential windfall proceeds.
IDA’s current market cap is A$67 million or US$46 million , assuming share price of A$0.10, fully diluted shares 673 million, and AUD/USD of 0.69.
This is a 50% discount to the settlement amount of US$90 million.
IDA also has a cash balance of A$20.5 (US$14) million, and communicates more clearly about its future plan.
I assume MON should trade at greater discount to settlement amount than IDA.
So, with the lowering of “realistic claim” expectation, MON seems not that much undervalued after all.
Sorry, I forgot that IDA’s ownership in the claim is only 69%.
So IDA is currently trading at 26% discount to its 69% share of the settlement, i.e., $US62 million.
Assuming that MON claims $C43 million (C$0.79 per share), settles for 80% at C$0.63, and then trades at a 30% discount to the settlement amount, the target price is C$0.44, representing 42% upside from current price of C$0.31.
snowball, I do not think it is correct to say that outcomes from today are in the +0% to +100% range. See the comment above from @pmgs. If sunk cost multiplier of only 1x is applied, then the award might be in C$24m range. Deduct lawyer fees, other expenses, apply a discount to eventual cash on the balance sheet, and one might easily end up below the current market cap of C$17m.
IDA has just received the second, $25m, settlement installment from Tanzania, in line with the previously outlined timeline. IDA has now received $60m, with the remaining $30m payment expected by late March 2025.
This is yet another indication of Tanzanian government’s willingness and ability to fulfill its financial obligations, which is clearly a positive for the recoverability of the potential award/settlement for MON.
Montero Mining Agrees to US$27 Million Settlement from Tanzania
TORONTO, Nov. 20, 2024 (GLOBE NEWSWIRE) — Montero Mining and Exploration Ltd. (TSX-V: MON) (“Montero” or the “Company”) is pleased to report a US$27,000,000 settlement has been reached with the United Republic of Tanzania (“Tanzania”) in the dispute arising out of the expropriation of Montero’s Wigu Hill rare earth element project (“Wigu Hill”).
The settlement sum of US$27,000,000 (approximately CDN $38,000,000) due to Montero is payable in just over 3 months, with payments scheduled as follows:
US$12,000,000– payable by 20 November 2024 –PAYMENT RECEIVED
US$8,000,000– on or before 31 January 2025
US$7,000,000– on or before 28 February 2025
The settlement sum represents ~39% of the US$70,000,000 initially claimed by Montero. This settlement obviates the need for a costly and time-consuming hearing, the risk of an adverse award, enforcement efforts, and finally concludes a near 7-year dispute.
Dr Tony Harwood, President and CEO of Montero commented: “I am pleased Montero was able to reach an amicable settlement with the government of Tanzania to bring a mutually beneficial end to this dispute. This resolution allows both parties to move forward, and we wish Tanzania every success in attracting new mining investment. I would like to thank our shareholders, board, management, and our legal and technical teams, for their valuable contribution to this outcome.”
ICSID Arbitration
Montero and Tanzania have sent a joint request to the arbitral tribunal to suspend the ICSID arbitration proceedings, as the first payment has been received by Montero. Subsequent payments are to be made by the specified dates provided. Provided the final payment has been received by Montero, the parties will request the arbitral tribunal discontinue the ICSID arbitration altogether.
Distribution of Funds
Montero and its litigation funding partner, Omni Bridgeway (Canada) will receive a distribution of the first payment. The second instalment will be distributed to Omni Bridgeway (Canada) and to Montero, and will also cover Montero’s operational needs and legal expenses, including payments to Boies Schiller Flexner UK LLP and Jeantet AARPI. Montero will entirely retain the final instalment.
Montero is planning a return of capital to shareholders where no amount has yet been determined and is subject to accounting review and board approval. In addition, Montero will retain funds to cover legal, taxation, and administrative expenses, including potential costs for arbitral proceedings, or enforcement actions if the second or third instalments are delayed or unpaid. The net amount of the award after repayment to the funder and legal expenses cannot be estimated with certainty and no assurances can be made. Further announcements will be made in due course.
So the settlement/award amount ( at US$27m, or C$38m), is higher than expected (based on sunk cost approach) .
But the distribution (coming from the third installment after 28 Feb 2025, at most US$7m, or C$9.5m, or C$0.175/share ) is less than expected.
Legal funding fees/expenses are higher than expected.
So the agreed settlement is C$38m vs market cap of C$15m. That’s close (or even slightly above) to what was expected – see discussions above between Idea Hive, pgms and myself. However, a large part of the received funds will go to litigation funder and to “cover Montero’s operational needs and legal expenses”.
Management kind of wanted to tell something about the split of distributions, but just made it more ambiguous:
– First payment: “Montero and its litigation funding partner, Omni Bridgeway (Canada) will receive a distribution of the first payment” – so some kind of a split between both parties.
– Second payment: “will be distributed to Omni Bridgeway (Canada) and to Montero” – same as for the first one, but the order in which the parties are mentioned has been switched. Is that meaningful in any way? Additionally the second payment “will also cover Montero’s operational needs and legal expenses, including payments to Boies Schiller Flexner UK LLP and Jeantet AARPI”.
– Third payment: “Montero will entirely retain the final instalment” – the only one that is clear.
Does anyone have any thoughts on how to think about likely shareholder distributions?
To your point DT, I understand some uncertainty around legal/ops expenses as to what will be distributed to shareholders.
I’m more confused on why there isn’t goal posts on what Montero will receive from the distributions though. Maybe there’s some negotiation there with the litigation co, but seems like you could still give broad ranges…
overall a pretty decent outcome. this implies 41-46c of net cash per share in MON, post all costs and contingencies (as i understand it, there is some uncertainty on the legal/admin cost piece outside of the litigation funding envelope, but i do not think it can realistically be more than a few mm CAD). i do not believe there is any tax payable on the net proceeds here given sunk costs in the project (>$18mm US) and the net proceeds to MON, after litigation/other expenses, being under this number (about 21-25mm CAD). given insider ownership and my own prerogatives, I expect the vast bulk of this ultimate cash proceed number should come back to shareholders.
the short payment window and fact the first payment has already been received also substantially derisks this from here.
In what form are these distributions usually paid out ? ROC or Div ?
I would regard the settlement as broadly in line with my expectations, or slightly positive. The settlement comes at only a 12% discount to my previously estimated “realistic” claim value based on the sunk cost method. As for the payment terms, they are more favorable than I expected, with payments scheduled to be received in just over three months.
Management has not specified what portion of the settlement proceeds will go toward litigation funding and other expenses. However, with what I’d consider conservative assumptions, the company will have c. C$20m available for shareholder distributions, compared to the current market value of C$18m. Given the involvement of Jeremy Raper and the company’s PR language, I would expect significant shareholder distributions to be announced as the payment installments are received, likely within Q1’25. So, with MON equity holders likely to receive all (or more) of their capital back shortly, I think it is worth holding on to the shares to see how things unfold.
I have shared my more detailed thoughts on MON post-settlement on the Idea Hive blog, dropping the link below.
https://ideahive.substack.com/p/mon-settlement-announced-riskreward
We don’t know exactly what the litigation funding agreement looks like, but it probably is no cure no pay with both litigation costs reimbursed and a performance fee in case of a win. I think that’s why the Indiana case had a much better net payout. I.e. assume litigation costs are $9m and the performance fee is 20%, that gets you to ~27m in costs for IDA and ~15m for Winshear. Doesn’t exactly match the numbers, but you get the idea.
Compared to Winshear, the Montero case took about a year longer to come to conclusion (3 years vs 4) and the eventual payout is slightly lower. That makes me think that the cost reimbursement part of the legal fees will be higher compared to the total payout. I.e., assume litigation costs $3m / year, costs would end up 12m + 5m, or something like that, for a net payout of only ~40%.
Not saying this is 100% going to happen, but I don’t think the 38% “take rate” in the WINS case is a worst-case scenario. The vague statement about the distribution of funds doesn’t exactly counteract my suspicions.
Feel obliged to mention that I have fully exited my position in $MON.V Montero. Whilst I am relaxed wrt Tanzania paying their last two tranches of the settlement, a full two months has now passed since the settlement and the co has still not provided some guidance around full legal/funder/admin costs that come out of the gross award.
Imo there is no good reason such disclosure should take so long, and given the embedded leverage of cash payouts to the ultimate litigation take rate here – combined w/ fact this is a ‘one asset’ company – I have decided discretion is the better part of valor.
I still hope this ends up w/ >40c of clean net cash to be returned to shareholders, in the coming weeks and months.
IdeaHive, thanks for your thoughts.
You do state quite clearly: ” However, given no indication of such plans [to invest in exploration] in the most recent press release”
In the “about the company” section of the press release it states:
**Montero will continue to seek a joint venture partner to advance its Avispa copper-molybdenum project in Chile.** Montero’s board of directors and management have an impressive track record of successfully discovering and advancing precious metal and copper projects.
So to me, it looks like management is not yet convinced they want to quit their day job just yet.
Or would you expect minimal cash outlay for Montero, given a potential “joint venture” being mentioned?
Thanks for pointing this out. While I would expect a company wind-down given sizable insider ownership (e.g., the CEO’s stake is worth multiples of his annual salary) and the presence of Jeremy Raper, there is definitely a risk that the company might pursue exploration in Chile. However, even in this scenario, I would expect the cash outlay to be insignificant, since, as you said, the company will likely seek a joint venture partner who will presumably handle the exploration. So, I believe my estimated net cash available for shareholder distributions would be a directionally appropriate estimate of potential capital returns in that scenario as well.
My estimate here is that the company will get ~20mm CAD after all said and done, inclusive of fee’s and such. It doesn’t sound like the RoC will be as sizeable as WINS (They paid back more than the mkt cap on that one) as they want to keep some cash in the kitty for development of the Chilean asset. That being said, seems like anything around ~32c/share is a very reasonable buy. Of course it’s much easier to handicap once they announce the RoC plan.
Just to be sure – there’s nothing to make of MON’s fall below that tight 31c trading range?
I haven’t seen any announcements or news that could explain the stock price move. I’d note that trading liquidity has been broadly in line with recent levels.
Oxy Capital acquired 29,800 additional shares of MON at C$0.31/share. Small increase in ownership – from 9.94% to 10.0%.
Net amt to Montero will be $20,577,545
No confirmation of the exact amount to be distributed to shareholders. Montero will retain funds to cover legal/taxation/admin costs still, though they sound primarily related to enforcement of non payment and costs of arbitral proceedings.
Main remaining q is what those outstanding costs are
Ignoring any remaining costs that would be $0.41/share. Maybe some anxiety about the uncertainty of timing/quantum of return to shareholders here.
Wonder if puppyeh selling forced their hand a bit here? Timing seems too coincidental
The implied funding and legal costs have turned out to be higher than my previous estimate (approximately C$18m vs. my estimated C$14m). Montero currently trades at a C$17m market cap compared to C$22m in estimated net cash (including proceeds from the exercise of stock options). While the company has not yet provided any guidance on how much of this net cash will be distributed, I had previously estimated that it would retain C$5m for administrative expenses and additional costs, including severance and wind-down expenses. So, I believe the margin of safety at current stock price levels is too narrow, and I have therefore exited my position at C$0.32/share. While there is a chance that my estimates are too conservative and that I may be leaving some upside on the table, I think it is prudent to close my position given the uncertainty regarding capital allocation/the size of potential shareholder distributions—especially in light of the recent exit of activist Jeremy Raper.
Do you think the 4 million stock options with C$0.33/share strike provide meaningful incentives for management to distribute significantly more than C$0.33?
Distribution of C$0.4/share translates into only C$280k pre-tax gains for the option holders. Seems too small compared to their other fixed compensations?
Anyone circling this one recently?
An interesting look at their outstanding options:
On September 4, 2024, the Company has granted 4,050,000 stock options to the Board of Directors, Management and Consultants. The stock options have an exercise price of $0.33 and have a five-year term
Would think any capital repayment should be above the strike? Would bring in an extra ~ $1.33mm
The incentive from the options package is too small a motivation. Even if MON pays out $0.40 (i.e. $0.07 above the strike), the before tax profit for the options holders is just C$284k or US$200k.
As per conversations, I don’t think a full RoC payment is in the cards with MON. I believe it will be somewhere in the high 20, low 30’s range. Hence when I look at the incentive stock options.
They will need to retain some cash in the company to help develop the asset left.
now that $MON.V has received all payments from Tanzania, what possibly innocent (ie shareholder-friendly) explanation could there be for not disclosing, finally, the net cash number in receipt by MON; and a dividend/capital return timeline/schedule?
they are not splitting the atom here. this stuff is elementary…
I find it fascinating that you were involved in the private placement, clearly showing trust in the management team at that time. However, given that you sold your shares before any distribution announcement, I’m curious if you could share any insights from your experience working with MOV management. Were there any red flags or valuable lessons learned that you could share with the rest of us here?
Thanks
not really sure there are any learnings other than the obvious. management will say everything you want to hear from them when they need the $$ from you (ie during cap raisings), and then, once they are in a position to pay it out, the tune immediately changes. i will not cast aspersions as to character, etc, but clearly the messages at the time of the raisings – which i obviously relied upon and treated as credible – were then significantly watered down, in a way i was ultimately uncomfortable with.
none of that guarantees a bad outcome here. again – i was not privy to any non-public info. this is all just my read from sitting at the poker table. but ive sat at a lot of these kinds of back room, dodgy, poker tables…
Okay, that in itself is interesting, thank you for sharing. I assumed you were effectively an insider, but seems like you were more an external capital provider.
You don’t need to cast aspersions; the lack of transparency from management speaks for itself.
you become a deemed insider – that is, irrespective of if you actually have an MNPI – under Canadian listing rules, at 10% ownership. i made sure never to cross that threshold (obvi if i had, i would have filed as such).
My best shot at a reason here:
Payment from Tanzania was still uncertain. They didn’t want to go too far down the path of figuring out of hiring advisors to figure out certain tax/legal options until they actually had the cash.
Also, there may be some grey area in some of the contracts with advisors as to how much they’re owed and potentially dependent on when cash was actually received.
The changes in the “about Montero” section of their PRs are ominous though.
You know this better than I, but mgmt aren’t exactly spring chickens. Is that a good or bad thing?
we are well past the used by date on any of those being a reasonable explanation here…as i said none of this math is rocket science (far from it), it is all formulaic and governed by existing contractual arrangements…
anyway best of luck to all still involved.
Trying to figure out Oxy Capital’s play here as they keep buying
By the way, news just hit with ~30c Return of Capital, and retaining ~6c/share in the company in cash. Combined with a 6-1 share consolidation
distribution this week? tmrw?
MON up 75% today.
TORONTO, Oct. 02, 2025 (GLOBE NEWSWIRE) — Montero Mining and Exploration Ltd. (TSX-V: MON) (OTCPK: MXTRF) (“Montero” or the “Company”) is pleased to announce that Minera Joy SpA, a wholly owned subsidiary of Montero, has entered into two option agreements (the “Agreements”) to acquire a 100% interest in each of the Elvira Gold Project (“Elvira”) and the Potrero Gold Project (“Potrero”) (together the “Projects”) located in Chile’s Maricunga Belt, a recognized mining district hosting Kinross’ La Coipa mine, Gold Fields’ Salares Norte mine, and Rio2’s Fenix gold project.