Thesis summary: Montero Mining and Exploration (MON.V) represents an attractive pure-play bet on the outcome of an ongoing arbitration/litigation against the Tanzanian government, for illegal expropriation of MON's mining licenses in 2018. At 32c, I believe MON is currently pricing around a 31% net recovery to MON shareholders on this claim - despite a similar claim (that of Winshear Resources, WINS), being settled at 32 cents on the dollar a few months ago - whilst an ongoing litigation for another claimant, Indiana Resources (IDA on the ASX), seems likely to generate a payout much closer to par. The Indiana case has huge precedent for what will happen here, and it seems to me the Tanzanian government is much more likely to settle the MON claim, either before or after the IDA case gets settled, at a discount to par but a valuation still well north of that implied by the market. I believe a settlement at say 50c on the $ is something like the base case outcome here - a scenario that would return ~64-73c per MON share - and there is some decent chance MON can extract more value than this once their arbitration hearing is conducted as well. 80c on the $ recovery (again net of all litigation fees, etc) to MON shareholders would be something like $1.1-1.25 per share, offering ~4x upside in something like a best case scenario.

This is clearly a tiny company, is quite illiquid, and is eminently a binary bet. If ultimate recovery on the claim is <15 cents on the dollar, the MON implied equity price is likely near zero. This is appropriate for PAs only. Please note I anchored a private placement to bridge the equity through the upcoming arbitration hearing, and the next 12 months thereafter, but beyond that there is a reasonable chance the company taps capital markets again if the litigation has not yet been resolved.

This is a very simple setup so the writeup will be brief; please feel free to ask further questions in the comments.

Background: Montero is a small Canadian mining concern that was trying to develop a rare earths mine in Tanzania, having invested $17mm beginning in 2008. In 2015 it was awarded a Retention License and was developing a plan to fund, and mine, the site, when the License was unilaterally revoked in 2019 when the government sought to essentially nationalize the mining industry in the country (see here for further detail). A Bilateral Investment Treat exists between Canada and Tanzania, and under the auspices of that relationship, MON has been pursuing Tanzania for compensation via the ICSID arbitration process (an entity of the World Bank, see here). As is common in these kinds of cases, MON is pursuing the full value of their expropriated claim (invested capital plus some NPV of assumed value of the in-ground assets, including assumed interest on lost capital compounded since expropriation) – but note that the exact methodology used to calculate the quantum of the claim has not been made publicly available and is subject to uncertainty.

International arbitrations are typically lengthy, expensive, and hazardous value extraction exercises. What makes this case/process interesting is that there are multiple, clear precedents that derisk entirely (in my mind) the legal basis/outcome of the claim, and also significantly derisk the quantum risk associated with the claim. Two extant arbitrations have either already been settled or are in the very late stages of settlement, that are couched in the exact same legal theory and which help in delineating the amount of value likely available to MON. Indeed the legal principles at play here appear basically beyond dispute, if the very similar precedents are anything to go by:

- The Indiana Resources case (IDA): IDA has been pursuing Tanzania through the exact same legal mechanism (ICSID arbitration), with the exact same tribunal location (Washington); and indeed the exact same legal team (Boies Schiller Flexner). IDA was awarded about $113mm USD in an Award in mid-2023 - a huge surprise not just in the outcome but also the quantum, given IDA had only claimed $127mm AUD (about $85mm USD) meaning the tribunal unilaterally awarded IDA almost 35% higher than the size of their original claim (this is fairly atypical for these kinds of arbitrations). The Award, and subsequent developments, have basically been a continuing series of mini-victories for IDA as they have sought to bring Tanzania to account to pay the full quantum of the award. Tanzania filed for Annulment (a form of appeal of this type of award) but 2/3 of the grounds for Annulment have already been struck down (that is, hugely positive for IDA); and in order to avoid IDA moving to attach/seize assets to the award (such as aircraft, etc), Tanzania has had to provide an Undertaking to pay the full quantum of the Award, within 45 days of decision of the Annulment (if they lose), such that it seems quite likely they will either pay full freight here or settle for a de minimis discount to the award, in the coming six months (see here). Any IDA settlement with Tanzania at any level over say 50c on the $ would clearly be a huge positive for MON from current prices (please note, I am long IDA too though that outcome has less balloon upside from here than MON);

- Winshear Resources case (WINS): WINS had a legally-identical expropriation case, for a gold development in Tanzania, once again conducted under the exact same aegis as this MON case (ICSID arbitration; Canada/Tanzania BIT; Washington tribunal; same lawyers, etc). Whilst WINS did conduct their hearing, they then settled with the Tanzanian government for about 32c on the $ cash pay - defraying all collection risk on the award as well as an arbitration Award quantum risk - in return for certainty of value (see here). Whilst this was lower than some were hoping for, it still represents a reasonable outcome for WINS shareholders. Importantly, there were other extenuating circumstances that perhaps explained WINS' early settlement and why we could logically hope for more in the MON case. WINS' largest shareholder was/is another penny mining company, Palamina Corp, that was cash poor and needed the cash infusion for its own development hopes and dreams. It appears they pushed the company to accept the low-hanging 'bird in the hand' rather than play out the string - something that will not happen at MON since the main investors here (including myself) appear to be purely financial players not interested in reinvesting proceeds in another mining concern.

Furthermore it is important to understand the reflexiveness between these cases and how they interact. When WINS settled, the IDA award had been handed down but it was still unclear if, or how, IDA was going to bring Tanzania to the table or enforce; now, with the Undertaking signed and delivered and the Annulment process already half dead in the water, Tanzania's hand has been progressively weakened such that all claims against the government appear to be better bets. Moreover, Tanzania has been in receipt of a very large amount of World Bank funding in the interim - over $1bn, see here - and is simultaneously being pursued (in ICSID) in another Word Bank entity (ie ICSID) - increasing the odds, in my view, of them kowtowing to World Bank directives (ie paying once losing on appeal) or otherwise settling residual claims ahead of a likely court loss.

Valuing MON: As part of a recent capital raising MON turned a few hundred thousand of residual debt into shares; as a result there is very little debt left and there are essentially no assets of value (in my view) beyond the litigation against Tanzania. There is some uncertainty with regard the litigation financing deal MON have funding the lawsuit, but the company says it is 'substantially similar' to the deal WINS got, which was a multiple of money invested (I believe 3.5x, along with a bonus payout based on gross settlement that I estimate at 16% (back-calculating from the WINS settlement and net payment to WINS after all costs, etc). On that basis, we can derive the following payouts to MON at various gross % on the $ recoveries: