Panthera Resources PLC (LON:PATP) (AIM:PAT) has been highlighted by VSA Capital as one of a growing number of small caps offering potentially significant upside via international litigation.
Indeed, the broker suggests that there is now even a growing sub-sector of litigation stocks or independent companies seeking compensation from foreign governments via International Arbitration afforded under bilateral investment treaties.
“Rather than trading on the merits of the company’s profitability, likelihood of asset development, or the underlying commodity prices, they are valued based on a risked percentage of the potential damages that may be awarded.”
Panthera is at a key stage in its process being heavily derisked from a technical and legal perspective following over twelve months of due diligence by litigation finance experts Litigation Capital Management.
LCM believes PAT’s case meets its legal and economic thresholds and has enough merit to provide US$13.6 million in financing.
VSA adds that LCM has an enviable track record since 1998, reviewing hundreds of cases per year, taking on only 3% and winning over 90%.
“It recoups fees/return from the damages awarded and is entirely aligned for a successful outcome.”
Panthera’s case is against the Indian government, which it claims breached the India-Australia Bilateral Investment Treaty (BIT) after changes to the mining laws and an application for a licence covering the Bhukia gold deposit in Rajasthan, India was rejected.
VSA adds that Panthera had defined a 1.7 million oz JORC resource at 1.4g/t but was prevented from expanding it to confirm the UNFC 7.17 million oz at 1.95g/t resource published by the Geological Survey of India over the same licence area.
Since rejecting the licence application, reports published in India have highlighted multi-billion-dollar valuations followed by a Government of Rajasthan auction of the licence.
The bid amount represents the percentage royalty the winning company will pay to the state together with a US$120 million ‘deposit’.
“The winning bid to which a Mining Lease is to be awarded was 65.3% suggesting that even at this level the bidder expects the asset to deliver value to them.
“In normal circumstances, this royalty value would have otherwise accrued to Panthera.”
VSA's estimated range of values for Bhukia, not including the royalty, suggests a wide range between US$133-1,044 million.
Even under the most conservative assumptions, Panthera’s current £14 million market cap is a fraction of up to 20% of the perceived award that peers trade at.
VSA has a target price of 40p and a ‘buy’ recommendation based on previously successful cases such as GreenX Metals and Indiana Resources (ASX:IDA).
The broker adds that its value is not based on a payout but a rerating that traditionally occurs far in advance of the result of the tribunal and receipt of award especially where backed by specialists such as LCM.
“This highlights that the opportunity in Panthera is in this re-rating and not waiting for the final outcome.”
VSA shares rose by 3.5% to 7.5p today.