Mining firm Pathfinder Minerals lost the rights to mine a Mozambique mineral deposit in 2011. It’s spent a decade chasing them back. Now, it has struck a deal to sell the claim and its subsidiary, IM Minerals (IMM), to the Acumen Advisory Group (AAG), an asset recovery firm.
Acumen has the financial muscle to claim against the Mozambique Government for its unlawful transfer of the licence, so the deposit could change hands yet again. Pathfinder executives claim that the licence was transferred to a company controlled by its “former local partners”, and then sold on to TZM Resources SA, a Chinese state-owned miner, all without the knowledge or consent of Pathfinder.
With state and private interests apparently at a crossroads, and a local dispute threatening to spill over into an international incident in an increasingly globalised sector, the issue could change the balance of power in Mozambique mining.
Peter Taylor, CEO of Pathfinder, is eager to make clear what he perceives to be injustices associated with the transfer of mining concession 4623C, once owned by Pathfinder.
“In 2011, Pathfinder, via its wholly owned UK subsidiary IMM, was subjected to the unlawful transfer by the Government of Mozambique of Mining Licence 4623C to an unconnected company controlled by Pathfinder’s former local partners, without the company’s knowledge or consent,” says Taylor.
“The licence was until then held by the IMM’s 99.99%-owned Mozambique subsidiary CMdN. The licence was later sold by the former local partners to a Chinese state-owned company, TZM.”.
Taylor explains that in 2020, the Mozambique Supreme Court rejected the company’s application to recognise the English High Court judgement. Having exhausted all other avenues, Pathfinder has since been preparing to bring a claim against the Government of Mozambique under the Mozambique-United Kingdom Bilateral Investment Treaty, signed in 2004, for facilitating the expropriation of the licence, an escalation of the dispute that could make the issue a truly international incident.
“Pathfinder has since pursued a multichannel strategy to attempt to recover the licence, including a successful action through the English High Court to confirm the validity of IMM’s ownership of CMdN and through attempts to negotiate with both the Government of Mozambique and the new licence holders.”
Taylor and Pathfinder have also enlisted the help of the AAG to aid in the dispute, a move which brings another country – in this case the US – and a new private party into the dispute.
“In September 2022,” Taylor elaborates, “Pathfinder entered into an option agreement with [the AAG], an asset recovery specialist incorporated in Delaware, USA, with a track record of international claim enforcement, under which Pathfinder has granted AAG an exclusive option to acquire IMM and the rights to bring a claim against the Government of Mozambique.
For the wider mining community, the key question is plainly whether Mozambique’s Government effectively stole back a paid for, owned concession and indeed under what justification? Taylor is candid.
“The Government of Mozambique facilitated the transfer of Mining Licence 4623C to an unconnected company controlled by Pathfinder’s former local partners without the company’s knowledge or consent. No justification was given.
“Mozambique’s Supreme Court subsequently failed to recognise the decision of the English High Court which was to the effect that the licence had been illegally transferred.”
Balance of power in Mozambique
It takes little imagination to extrapolate a number of outcomes for foreign multinationals, African Governments and wider mining stakeholders from this action. Might other claims follow? Will the government be more reluctant to expropriate land or licences in future? Taylor points to a simple truth; money talks.
“Mozambique is reliant on foreign direct investment,” he explains, pointing again to the 2004 treaty as a framework to inform the dispute. “[The treaty] was an agreement for ‘the promotion and protection of investments’, which established that UK company investments, “’hall at all times be accorded fair and equitable treatment and shall enjoy the full protection and security’ in Mozambique.
“Moreover, the treaty established that UK company investments shall not be expropriated. It is plain to see that the rights of British shareholders in respect of Pathfinder’s licence ownership have not been protected by the Government of Mozambique and this could have negative implications on future foreign investment in Mozambique.”
The Mozambique Government’s apparent dismissal of this treaty raises the question as to whether the legality of titles and ownership of claims in Mozambique require modernisation or attention. The country has big mineral reserves that might be vital to future sustainable industries and technologies. This issue could become ever more important.
A report published by the World Bank Group in 2020 reveals that availability for graphite, lithium and cobalt may need to increase by nearly 500% by 2050 to meet the growing demand for clean energy technologies. Indeed, some three billion tonnes of minerals and metals will be needed to deploy wind, solar and geothermal power, as well as energy storage, and such rapid changes in global mineral demand could make countries like Mozambique suddenly more attractive for foreign investment.
Syrah Resources, an Australian company, already owns the Balama Project in Mozambique, the world’s largest integrated graphite mining and processing facility. Work such as Syrah’s, which includes a deal to provide 2,000 tonnes of graphite anode to South Korean battery manufacturer LG Energy Solutions, will help drive what is expected to be a 128.6% increase in Mozambique graphite production in 2022.
Likely outcomes of the claim
“In December 2020, Pathfinder received a legal opinion that, subject to the interpretation of the facts and applicable laws as they were known to the board and counsel, there is a 55%-60% prospect of establishing liability on the part of the Government of Mozambique in a Claim under the treaty,” Taylor reveals.
“As part of the company’s preparatory procedures, Pathfinder commissioned Versant Partners to undertake an analysis of the valuation of Pathfinder’s potential claim. The Versant analysis assessed a range of successful scenarios with valuation ranges from a minimum of US$110m for an ex-ante damages award through to US$1.5bn for an ex-post damages award.”
That’s big money, and raises further questions, namely what elsebeen happening for the last decade; obfuscation from the Government or other trouble?
Taylor didn’t say, merely pointing out again that Pathfinder has pursued a multichannel strategy to attempt to recover the licence, including a successful action through the English High Court to confirm the validity of IMM’s ownership of CMdN.
“Pathfinder expects the claim will be decided by the International Centre for Settlement of Investment Disputes, part of the World Bank,” says Taylor. Given there is a history of illegality and corruption, sadly, across much of Africa’s extractives sector, World Bank involvement may be no bad thing.
At the time of writing, the Mozambique Government has not published a statement on the dispute, which will do little to address the uncertainty surrounding the loss of Pathfinder’s licence. The whole story appears to beg the question; how better might paid-for concessions be protected and run fairly for the benefit of all stakeholders?
“The Government of Mozambique’s actions in regard to Pathfinder’s licence have demonstrated that foreign investors cannot trust in the rule of law in Mozambique,” Taylor concludes; quite the statement.
“Quite simply, mining concessions and investors would be better protected if host governments are prepared to adhere to their own laws.”