The Arbitration Basket
$MON.V $IDA.AX v. Tanzania. $GDRZF v. Venezuela.
I am a novice investor and I am even less experienced and knowledgable in law. Confidently investing in international arbitration situations is beyond my current capacity. Nonetheless, this an interesting field and I am eager to learn.
Investors who I closely follow brought me to this interesting place. Given my ignorant condition please do not expect many new original ideas. I have not seen a writeup about Montero Mining ($MON.V), so prepare for a crisp summary! Please share any valuable information about these companies if you have any!
3 v. Tanzania
Between 2020 and 2021 three companies initiated a dispute against Tanzania about extremely similar expropriations cases of mining concessions in the ICSID international court. Winshear Gold (WINS.V), Indiana Resources ($IDA.AX), and Montero Mining ($MON.V) used the same legal basis and even share the same legal team: Boies Schiller Flexner.
In July 2017, the government of Tanzania amended the Mining Act 2010 and in 2018 followed to publish the new Mineral Rights Regulations, which cancelled the mining licences for all three companies. The rights were quickly transferred to the government.
The companies quickly engaged with Tanzania until 2019 to solve this issue to no avail. The government publicly announced that the new successful bidders of the concessions would need to compensate the previous owners. However, when the official tender began such provision was eliminated.
As aforementioned, the three parties brought Tanzania to an international court (ICSID) to settle their dispute. In February 2022 Indiana resources ($IDA.AX) completed their hearings in Washington, DC and 5 months later in July they were awarded USD$109.5 including accrued interest. This was a surprise because the company’s original claim was USD$90m. In October Winshear settle with Tanzania for USD$30m before any award was dictated and their initial claim totaled USD$130m.
Montero Mining ($MON.V) is expected to have their hearing very soon 2024. Given the success of Indiana and the quick settlement with Winshear, It is reasonable to expect Montero to win the dispute or settle before any award is granted. The legal basis for all 3 cases is the same.
Indiana Resources ($IDA.AX)
After the company was awarded USD$109.5 in damages, Tanzania quickly submitted an annulment request to the ICSID and an ad hoc committee was formed. In December the ICSID rejected Tanzania’s undertaking because it wasn’t compliant.
Essentially, the government had to acknowledge the award as “binding and final” to continue with the proceeding.
Tanzania agreed to pay all the the award within 45 days of the final annulment decision. It was also noted that the government recently received a USD$1.1bn loan from the World Bank, which makes it more difficult for Tanzania to argue against paying the award.
Indiana trades for A$51m.The current price implies almost half award collection. Tanzania could surely still not pay and there is also still the tiny chance of the annulment succeeding for the government.
Montero Mining ($MON.V)
This company trades at a 88% discount to their submitted claim. Again, the hearing for the company will be very soon in early 2024 and the legal case is essentially the same as Winshea and Indiana. Even assuming very punitive assumptions Montero is trading at an interesting valuation.
Assuming a 50% discounts to their submitted claim, Montero still trades relatively cheap to Indiana. Keep in mind this is almost a year behind in the process compared to $IDA.AX. However, given the settlement with Winshear and the recent acknowledgement and commitment to pay the award with Indiana, Montero seems cheap at current prices and could even settle this year. This has very similar risks as Indiana and also the award could be substantially less than what they claim.
Gold Reserve v. Venezuela
After more than a decade of continued development and investments, Gold Reserve and every foreign miner in Venezuela were expropriated from their mining concessions in 2009 by former president Chavez. Gold Reserve initiated a dispute in the ICSID and in 2014 was awarded $713m in damages.
Two years later in 2016 the government settled with Gold Reserve for almost $800m. However, Venezuela only paid $254m.
Naturally many other miners were also expropriated at the same time as Gold Reserve and each of them held very substantial amounts of ICSID arbitration awards. One of them was Crystallex Corp, who brought their award to a Delware court. Their plan was to extract their award by attaching their judgement to the shares of Citgo, a company owned by Petróleos de Venezuela, a Venezuelan state-owned entity. Crystallex succeeded and the judge Leonard Stark ruled that Petróleos de Venezuela acts as the Venezuelan government and therefore a lien could be placed on the Citgo shares. The governments appealed but was it unsuccessful.
In 2018, the Trump administration sanctioned Venezuela and prohibited the foreign government to access domestic capital markets. Therefore, there was not a way for those other than Crystallex to obtain a writ of attachment on the shares unless the Treasury approved it. A series of events transpired afterwards and a priority hierarchy was created for the judgement creditors by judge Stark based on the date the parties moved for the writ of attachment on the Citgo shares. Gold Reserve stands more less between $8.7bn and $9.7bn ordered by claims. Therefore if Citgo is sold for $10bn, Gold Reserve should be payed in full. The Treasury has already stated they will issue the necessary permits for the transaction.
The company is currently valued for $320m and, if paid in, full the stock would double.
There are several clues which suggests Citgo is worth more than $10bn. In 2022 they generated $4.4bn in EBITDA and similar publicly traded companies trade between 3-4x EBITDA. Also, given sanctions, Petróleos de Venezuela has not been able to receive any dividends either, which could suggest the equity of Citgo could be worth even more because of accumulated cash.
There is a spectrum of risks apart from Citgo being sold for cheaply. Political swings could affect the sanctions status and therefore delay this considerably or even jeopardize placing a lean on the Citgo shares. The sale date is scheduled for July 24, so the short timeline should reduce the aforementioned risk. Also, Crystallex and Venezuala could settle, although judge Stark has made it clear that in such a case he would continue with the sale under a different process. The court also ordered a settlement must be approved by the court, despite this case not classifying as a bankruptcy.
Most of the value from these companies comes from their arbitration awards and given my current ignorant status I have sized this tiny basket as a very small stake in my portfolio. There could be risks that I am not aware of and I hope some diversification can work in favor of the know-almost-nothing investor.
Please interact in the comments and reach out with ideas and discussions!