Pathfinder Resources : Response to ASX Query

For personal use only

13 July 2022

Mr Raj Logarajah

Australian Securities Exchange

Level 40, Central Park

152 St Georges Terrace

Perth WA 6000

By email:[e-mail]

Dear Raj

Pathfinder Resources Limited: Response to ASX Query Letter

We refer to your letter dated 4 July 2022 (Letter). Capitalised terms used in this letter have the meaning given in the Letter unless otherwise defined. Set out below is the response of Pathfinder Resources Limited (Pathfinder or the Company) to each of the questions in the Letter.

1. Why has the Company been unable to undertake drilling or other sub-surface exploration activities at its King Tut, Diana II or Guille projects?

The Company has been delayed in undertaking drilling as the Company has been unable to obtain the required drilling permit approval from the local government authority.

In Argentina, each province is the owner of the natural resources located in their respective territories and permitting is managed by both the mining and environmental departments of each province. The Company's King Tut project comprising the King Tut exploitation concession, the Guille exploration permit and the Diana II exploitation concession (King Tut Project) is entirely located in the La Rioja Province. As previously announced, the Company has been engaging with the Mining Department, Water Department and Environmental Department of the La Rioja Province to obtain the required drilling permit approvals for its King Tut Project (Drilling Approval) (refer to announcements dated 25 January 2021, 5 March 2021, 30 April 2021, 16 June 2021, 30 July 2021, 16 August 2021, 23 August 2021, 29 October 2021, 31 January 2022 and 29 April 2022).

At the time of lodgement of the Prospectus, the Company understood that a prerequisite to initiating any field work (which would extend to drilling) was that the Company update its Environmental Impact Assessment (EIA) which would then enable the grant of an updated Environmental Impact Statement (EIS). The EIS for the King Tut Exploitation Concession had expired in May 2020. The updated EIS was expected to be evaluated through the same administrative process as the original EIA. This process is clearly set out in the Independent Solicitors Report in the Prospectus.

As part of its preparations for conducting drilling on the King Tut Project, the Company was advised that it would need to obtain a Water Use Permit prior to being granted the EIA. An application for a Water Use Permit was submitted on 18 February 2021 (subsequently granted on 15 December 2021).

Since then, at various stages in the process, the La Rioja mining department, water department and environmental departments made numerous additional requests for other permitting applications and supplementary information.

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To obtain the required approvals for the King Tut drilling program, the Company has prepared applications for the following permits and approvals (refer to announcement dated 16 June 2021):

• Updated Environmental Impact Assessment (EIA)
• Hazardous Waste Licence
• Registration of the Company as a Generator of Hazardous Waste
• Water Use Permit
• Water Capacity Survey
• Water Management Plan

All requested documentation (as noted above) has been submitted (as noted in the announcement of 16 August 2021).

At various times, restricted movement and access in Argentina due to the COVID-19 pandemic have significantly slowed administrative processing in the country (refer to announcements dated 19 November 2020, 2 December 2020, 30 July 2021, 16 August 2021 and 23 August 2021). In addition, the government departments require applications for any permits to be made in person at their relevant department, which has caused further delays.

Presently we have been advised that the only outstanding approval in order to commence drilling as proposed is the grant of an EIS in relation to the updated EIA lodged by the Company.

2. Please explain the basis upon which the Company indicated in the Prospectus it was going to conduct "significant exploration" and "extensive drilling" at the King Tut Project (as quoted in paragraph B above).

The Company's strategy, outlined in the Prospectus, was to operate as an exploration and development company focused on mineral exploration and development of commodities including gold, cobalt and other minerals.

The Company intended to expend approximately $3.34 million of the funds raised under the Prospectus at the King Tut Project, on activities including preliminary on-ground exploration, drilling and project management costs during the two years following the Company's admission on the ASX (as set out on pages 25 to 26 of the Prospectus). As set out in the Company's quarterly activity report for the three months ended 31 March 2022 (announced on 29 April 2022), the Company has spent approximately $1.03 million on these activities, the variance being the balance of funds allocated to drilling. In the Company's view, it has undertaken "significant exploration" in accordance with the statements it made in the Prospectus.

The basis upon which the Company made the above statements in the Prospectus was as follows:

• As noted in the Independent Geological Report included in the Prospectus, the King Tut Project has excellent potential and could provide a significant series of resources and discoveries if explored in a systematic and qualified way. The IGR noted that mining of the existing King Tut mine may also be possible as most of the known mineralised veins remain underexploited due to limited mining during the mine's development.
• The King Tut Project is a historic gold and cobalt mining operation, with historical production having occurred on the King Tut and Diana II exploitation concessions (refer to section 6.1 of the Independent Geologist's Report in the Prospectus and Section 5.5.1 of the Prospectus). The existence of a historic exploitation concession with recorded production inferred that the Company was likely to be able to drill on the King Tut Project.

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• The Company engaged Bastias Yacante Abogados (BYA) to prepare a legal report in relation to mining rights to be acquired by the Company in conjunction with its IPO (Independent Solicitor's Report). BYA was aware that the Company intended to conduct drilling on the King Tut Project.
• In the Independent Solicitor's Report, BYA noted that there was an existing EIA on the King Tut Project, but it needed to be updated prior to initiating any field work (which the Company understood to include the conducting of a drilling program) since the EIS in respect of the King Tut Project expired on 2 May 2020.
• Section 4.12 (Mining Environmental Regime) of the Independent Solicitor's Report highlights the requirement for an EIA under National Law 24,585 prior to the commencement of any mining activity. The EIA is required to be submitted to the relevant Enforcement Authority that each Province determines within the scope of its jurisdiction. The filed EIA is assessed with a technical, scientific and legal-administrative process of analysis and valuation, through which its components, doubts and omissions should be identified, related and ranked, in accordance with policies, judgments and parameters assumed by the Enforcement Authority. Once assessment of the EIA has concluded, the Enforcement Authority shall issue the EIS which is the final document of the assessment, containing the terms under which the mining activity shall be performed in connection with the environment, the community and the authority.
• Specifically, the Independent Solicitor's Report stated that "the updated EIS report is evaluated through the same administrative process as the original EIA". As set out above, the EIA had previously been granted and it was reasonable for the Company to assume that it would be able to be updated, which in turn would allow the Company to conduct drilling on the King Tut Project.
• The Company did not anticipate that there would be any difficulties in updating the EIA as, in addition to the matters noted above, at the time of lodgement of the Prospectus, there had been multiple ASX companies which had carried out exploration and drilling activities in Argentina. Indeed, following lodgement of the Prospectus, the Company conducted site visits, mapping and sampling, (see the announcement released on 25 January 2021 and the quarterly announced on 29 January 2021), without encountering any hurdles from the local authorities.

Whilst the Company was confident that it would be able to carry out the exploration activities as proposed for the reasons summarised above, the Prospectus clearly disclosed the risks which may be applicable to the King Tut Project, which disclosure included the risk factors extracted below:

• Exploration and Operating
  The success of the Company will also depend upon the Company being able to maintain title to the mineral exploration permits and licences comprising the King Tut Project and obtaining all required approvals for their contemplated activities. In the event that exploration programmes prove to be unsuccessful this could lead to a diminution in the value of the King Tut Project, a reduction in the cash reserves of the Company and possible relinquishment of one or more of the mineral exploration permits and licences comprising the King Tut Project.

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• Regulatory
  The Company requires permits from regulatory authorities to authorise the Company's operations. These permits relate to exploration, development, production and rehabilitation activities… Obtaining necessary permits can be a time-consuming process and there is a risk that the Company will not obtain these permits on acceptable terms, in a timely manner or at all. The costs and delays associated with obtaining necessary permits and complying with these permits and applicable laws and regulations could materially delay or restrict the Company from proceeding with the development of a project or the operation or development of a mine. Any failure to comply with applicable laws and regulations or permits, even if inadvertent, could result in material fines, penalties or other liabilities. In extreme cases, failure could result in suspension of the Company's activities or forfeiture of one or more of the Tenements.
• Mine development
  Possible future development of mining operations at the King Tut Project is dependent on a number of factors including, but not limited to, the acquisition and/or delineation of economically recoverable mineralisation, favourable geological conditions, receiving the necessary approvals from all relevant authorities and parties, seasonal weather patterns, unanticipated technical and operational difficulties encountered in extraction and production activities, mechanical failure of operating plant and equipment, shortages or increases in the price of consumables, spare parts and plant and equipment, cost overruns, access to the required level of funding and contracting risk from third parties providing essential services… No assurance can be given that the Company will achieve commercial viability through the development of the Project.
• Tenure, access and grant of applications
  There is no guarantee that current or future tenements or future applications for production tenements will be approved. The Tenements are also at various stages of application and grant. Specifically, the Guille Exploration Permit is subject to renewal, whereby the Company (together with its local advisers and consultants) is to apply to the Mining Authority and provide a 'Statement of Discovery'. There can be no assurance that the tenement applications or renewals that are currently envisaged or pending will be granted (including in relation to the proposed renewal application concerning the Guille Exploration Permit) … the consequence of being denied the applications for reasons beyond the control of the Company could be significant specifically for the King Tut Project.
• Environmental
  Approvals are required for land clearing and for ground disturbing activities. Delays in obtaining such approvals can result in the delay to anticipated exploration programmes or mining activities.
• Government Policy Changes

It is possible that the current system of exploration and mine permitting in Argentina may change, resulting in impairment of rights and possibly expropriation of the Company's properties without adequate compensation.

The risk factors extracted above clearly identify that the Company's contemplated activities in respect of the King Tut Project, including its proposed drilling activities, were subject to and conditional upon the Company being able to obtain all required permits and approvals.

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Additionally, the Prospectus clearly noted that the intended use of funds which was illustrated within the Prospectus reflected the Company's current intentions at the time. The use of funds table set out within the Prospectus was qualified by a statement which noted that the manner in which the funds were ultimately applied would potentially be affected by new circumstances and intervening events (including exploration success or failure). The Company reserved the right to alter the way in which funds were applied on this basis. The intervening events that have occurred (including delays in obtaining necessary regulatory approvals for drilling at the King Tut Project) were identified as risk factors within the Prospectus and have resulted to a change in the intended use of funds raised as contemplated by the Prospectus.

3. Please provide specific details (including the progress status) of the activities the Company has so far undertaken in furtherance of the drilling program it committed to pursue at its King Tut Project (the 'Drill Program') in the Prospectus (as noted in paragraph B above) and in its announcements dated 19 November 2020 and 5 March 2021 (as noted in paragraph D and E).

The Company has undertaken significant exploration activities since listing which included carrying out mapping, surveying, sampling, geophysics programs and engaging with advisers. This work was done in preparation for a drilling program.

The Company prepared and planed for the maiden drilling program, by:

1. Designing its drilling program and selecting drillhole sites, as announced on 5 March 2021
2. Appointing a drilling contractor, ConoSur Drilling S.A (formerly Energold Argentina S.A), as announced on 18 March 2021
3. Attending to site works including clearing and repairing access roads during March and April 2021
4. Campsite identification during March 2021
5. Sourcing of local labour during March and April 2021
6. Sourcing of drilling consumables during March and April 2021
7. Obtaining legal advice in relation to the carrying out of the drilling program and approvals from early 2021
8. Submitting an updated EIA and supplementary documentation as noted in the table below

Document	Submission Date	Confirmation Date
EIA	December 2020	Currently outstanding
Hazardous Waste Licence	12 July 2021	16 August 2021
Registration of Company as a	12 July 2021	16 August 2021
Generator of Hazardous Waste
Water Use Permit	18 February 2021	15 December 2021
Water Capacity Survey	4 June 2021	15 December 2021
Water Management Plan	31 May 2021	15 December 2021

1. Establishing relationships with respective regulatory groups from December 2020 onwards
2. Continuing engagement with the key stakeholders and community groups in the province. To assist with the development of a comprehensive social management and communication plan, the Company engaged local consulting group, Papi Group Latam Consulting and Mr Miles Lewis, highly respected independent advisers, to assist with this matter
3. Engaging with the Department, Secretary of Mining of La Rioja, Director of Mining and other regulatory departments at both the provincial and federal levels (refer to table above) including attending site visits with members of the government departments in March 2021

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