Sarama Resources (ASX: SRR)

The Opportunity: A Compelling Asymmetric Play

We identified Sarama Resources (ASX: SRR) as a classic asymmetric investment opportunity. The company presented two distinct and powerful value drivers:

1. a massive, de-risked arbitration claim that provided a non-dilutive ‘call option’ on a significant cash settlement; and
2. a highly prospective gold exploration story in a Tier-1 jurisdiction.

We believed the market was failing to correctly price this compelling asymmetric risk/reward profile.

Derisked and Underappreciated Arbitration Claim

Sarama has a claim for the illegal expropriation of Sarama’s multi-million-ounce gold deposit in Burkina Faso. The legal pathway for this is well-defined. Sarama is a Canadian-domiciled company, and a Bilateral Investment Treaty (BIT) exists between Canada and Burkina Faso. This treaty provides foreign investors with substantive protections and allows Sarama to bring its claim before the International Centre for Settlement of Investment Disputes (ICSID), a part of the World Bank Group that provides a formal, rules-based process for resolving such disputes.
Our conviction in the claim’s merits was reinforced by three key factors:

1. Elite Legal Counsel: Sarama appointed Boies Schiller Flexner, a renowned international law firm. The lead counsel, Timothy Foden, has an exceptional track record. He has won six from six in treaty claims over the last two years, major awards for other ASX-listed companies, including Indiana Resources (ASX: IDA) for US$120million and GreenX Metals (ASX: GRX)for A$490 million. We understand Timonthy is extremely selective with the cases he chooses to take on.
2. Non-Recourse Litigation Funding: The claim is fully funded by specialist litigation funder, Locke Capital. Before providing a multi-million dollar, non-recourse loan, these funders conduct an exhaustive due diligence process. This funding structure not only removed the financial risk for Sarama and its shareholders but is a powerful third-party validation of the claim’s chance of success.
3. Massive Asymmetric Upside: The stated claim is for damages of “no less than US$120 million”. At our entry price, our internal modelling suggested a potential 10x upside for investors upon a successful outcome, creating an exceptionally attractive and mispriced risk/reward profile.

Underexplored and Newly Acquired Gold Asset in a World-class Postcode

Furthermore, intelligence and channel checking validated the geological potential of Sarama’s newly acquired WA assets. Our view was that these projects represented one of the last underexplored greenstone belts in the prolific Laverton Gold District. Neighbours include major deposits like the 8Moz Gruyere and 2.5Moz Garden Well gold mines yet had seen limited modern exploration.

Proven and Experienced Management

Our conviction was reinforced by the strength of Sarama’s proven management team. The team was instrumental in growing Moto Goldmines (Africa’s largest gold mine, now the Kibali Gold Mine) from a 2Moz to a +20Moz Tier-1 asset, culminating in its US$578 million acquisition.
The same team went to discover the 3Moz Tankoro Deposit in Burkina Faso, now subject to the arbitration claim.

Catalysts

Our investment thesis was supported by a series of distinct, near-term catalysts that we believed would unlock the value overlooked by the broader market.

• Funded Exploration Campaign: The capital raising allowed Sarama to commence its maiden drilling campaign in the prolific Laverton Gold District, creating potential for a near-term discovery.
• Structured Arbitration Milestones: The arbitration claim was set to progress through the structured and transparent ICSID process. We identified the lodging of the Memorial (Statement of Claim) as a key upcoming milestone that would formally detail the merits and quantum of the case.
• Market Education & Re-rating: We saw an opportunity to educate the market on the specifics of the arbitration process and the compelling, de-risked nature of Sarama’s claim. By articulating the case’s strength, we could help the market correctly price the significant upside potential.
• Potential Capital Rotation: We identified a unique opportunity to attract capital from Indiana Resources (ASX: IDA) investors. With a $30m special dividend from their own successful arbitration award being paid, we anticipated the potential for a direct flow of these investors onto the Sarama register.

The Outcome