Cadence Minerals plc share price, company news, analysis and interviews

Cadence Minerals plc (LON:KDNC) Chief Executive Officer Kiran Morzaria caught up with DirectorsTalk for an exclusive interview to discuss the completion of phase one of their investment in the Amapá Iron Ore mine, plans for phase two and other significant developments.

Q1: First off, congratulations on closing the first phase of Cadence Minerals’ investment into the Amapá Iron Ore mine. Can you just explain for us though what did it entail and what can you tell us about the estimated value?

A1: What we’ve been talking about and I’ve mentioned previously is to vest our first 20%, what was needed was a series of preconditions which were achieve actually in 2019 and the biggest gap that was outstanding was the settlement with the bank creditors because we’ve taken this old mine that went into restructure, or judicial reorganisation, equivalent of chapter 11, and we’ve taken it out for the legal process. One part of that was there was a set of secured credit, these secure creditors were institutional banks, both in India and Italy and  they had an outstanding debt which at the time was $135 million. So, for us to vest our initial 20%, we needed to reach a settlement with the bank creditors and then our $2.5 million that’s been sitting in escrow since June 2020 will be released as part of that settlement.

So, we achieved the settlement in the end of last year, 24th of December and we announced on 29th. What I said then was that there is still some bits and pieces to do which are formality, I think my analogy was that it was effectively like you bought your car and now you can file the v5 at the DVLA. So there’ no risk, it was a done and dusted deal, it was just that this was an announcement saying all of outstanding documents being filed and completed have been done and the shareholding is vested 100% into our joint venture company and we got our 20% of that joint venture company. We now have 20% of the Amapá Iron Ore mine which includes the mine, railway and port.

You talk about the value, well, of course, what we’re doing right now is a prefeasibility study, that prefeasibility study determines the engineering accuracy and the cost accuracy to around 25% on a capital and operating basis. Once we have this completed, we’ll announce that to the market and that will provide a net present value in relation to the assets’ mine life and the capital and operating expenditure. We obviously have some ideas of that CapEx and OPEX from our scoping study level studies, which have about a 50% accuracy but that really defines it.

Now, if you’re talking about the valuation of it, I think the best place to look and it’s the most recent valuation, it’s quite old, it’s 2012 when Anglo American had a written down value of the book asset, on 100% basis, of around $660 million. So, we’re talking about, initially, to get to 27%, $6 million, of an asset that was worth £600 million. So, there’s plenty of potential uplift, assuming that it gets into production.

Q2: So, as part of the second investment phase, you’ve recently announced a very successful fundraise. How did that go and what are your plans now for using the proceeds?

A2: The fundraise went better than expected. What I would say is that we oversubscribed over the 4.41 million that we announced and we had to cut people back. We also brought in some institutional backing as well, which is really good, and that has made it that we’ve now got a bit more institutional backing within our share register.

I think it’s important to know that the share raises that we’ve done since 2019, when we consolidated this, they’ve always added value, the share raise at that point was 6p then one at 9p, one 12p and this one at 20p. Unfortunately given our market cap and liquidity, we often get asked for discounts, we do a book build and see where our prices get to and we really try to achieve the best price. They, typically for us, have been about 17%-20% discounts for market capitalisation which if course is a concern to our shareholders but in this case, what we’ve also allowed shareholders, if they wish to, is get everyone, and we’ve done an open offer to shareholders which could raise about a maximum of £1.5 million. It’s not the quantum really for us, we raise enough capital to do what we need to do, but it’s there for shareholders to participate at the same terms as those new shareholders and current holders who have participated in the last placing.

So, it’s been successful in terms of quantum, it’s successful over the gradual capital raises that have been increasing in price, yes, it’s not ideal in terms of the discount but ultimately given our market size, given our liquidity, that is where we’ve been so far, historically we’ve been having those levels of discount beforehand.

Was it going to be useful? Well, in the absence of this amount of money, we wouldn’t be able to vest our next tranche going to 7% so $3.5 million is going straight into the Amapá project, pay for the PFS studies, the prefeasibility studies I mentioned beforehand, and that takes us to 27%. So 27% totalling $6 million, as I mentioned, that’s given that the asset is worth $600 million, that’s a really good potential return for us.

There are some other assets that we have in our portfolio that we should look at either increasing or investing in but ultimately the very clear focus for the large majority of the funds is to go into the Amapá Iron ore asset and its development for production.

Q3: Now, it’s also worth pointing out that the Amapá asset, it’s already profitable with shipments carried last year, what is the plan though for this year?

A3: What happened last year is we were still under the JRP so technically we weren’t to ship material so what happened is that DEV Mineração applied to the court because you needed liquidity and capital to keep things running at the mine and progressing at the plant. So, we got a judicial order to able to go to ship up to a net of $10 million so three or four shipments were made between March and up to June and July and that fulfilled that $10 million, I think the net about $8.8 million. There was $1.5 million of ship FOB costs, which is Free on Board costs, at the site, there was some further costs in relation to the improvements that people saw that we had made, small bits of infrastructure and starts of these PFS studies. There’s a large majority, a large chunk that also remained there that will go towards the banks so that’s reducing the requirements of shipping in the longer term.

As to when we to restart, we did actually get another permission to ship another $10 million but what we saw, iron ore came off and shipping rates as a result of pandemic and I’m sure you’re all aware, how we increased quite dramatically. We went from a point where we were shipping rates to 45/50 and all the way up to 90 bucks a tonne so that was equivalent to dry tonne so it was really quite expensive and restrictive.

What we’ve seen now is, it’s obviously all shipping price dependent and iron or dependent, is that we will start to ship again and we’ll announce when that happens, and we’ll ship to pay down the banks as per our agreement, about 90% of the value of that net value of that goes to pay down the banks and pay down the credit value of that and 10% can be utilized for the company and its development.

So, when is very much dependent on when we see enough margin, and lock in that margin, to typically pay down the banks, the linear manner and ensure that in two years’ time, which is about the timeline of paying the banks, the banks debt is completely paid and we’ve also generated some revenue to invest in the equity of the project from that stockpile.

Q4: Just in terms of your projects, I know there are many, but have there been any significant developments that you’d like to mention?

A4: I suppose the most two significant developments this year and the tail end of last year were firstly, Ganfeng had finalised its takeover of Bacanora Minerals. Ganfeng are now Cadence Minerals’ JV partner on a small proportion of the asset so we have a JV on one of the licenses, particularly the Fleur license which is the most important one. That JV stipulates the current rates of planned production from Bacanora’s bankable feasibility study in 2019 shows that that will be mined from year 8 to 19. So, it’s quite far out, but we are a JV partner now with Ganfeng on a 30% basis for us and 70% basis for them on that area. Of course, we’ll see where Ganfeng want to take this and yes, if they want to increase the production, that will probably mean that our mine plan will come early. At the moment, they’re settling in and they’ve priorities that need to work on with that asset and we are in conversations with them so we’ll see what happens.

The other one is Hastings Technology Metals, of course that’s just happened just recently where they actually got a large chunk of their funding from the Australian government, which is really quite interesting as well. So, it’s showing that there’s a bit of naturalisation with a lot of these rare earth assets because they don’t want China to dominate so much. So a large chump of funding from the national government to get the capital to develop their assets.

Cadence Minerals plc (LON:KDNC) Chief Executive Officer Kiran Morzaria caught up with DirectorsTalk for an exclusive interview to discuss its inaugural shipment of iron ore from Amapá, the next steps and the potential opportunities and benefits that it’ll bring for the wider community.

Q1: Now you announced your inaugural shipment of iron ore from the Amapá Iron Ore project in Brazil. Kiran, what was the significance of that announcement?

A1: This was a hugely significant announcement for DEV Mineraço, the company that we’ll be investing into, and Cadence Minerals.

One of the most important things about this asset was its ability to effectively start selling 1.39 million tonnes worth of high-quality high-grade iron ore that exists at the site and that to be utilised, to reinvest into the project, and of course, pay some small creditors and employees.

So, this is incredibly significant because we’ve now been able, under a court order, to start moving that material up to a net value of $10 million and, as I’ve just said beforehand, around $2.5 million of that will go to the small creditors and ex-employees when this asset went into receivership in 2015. In addition to that, $6 million will be utilised to reinvest in the project, particularly studies and general maintenance of the asset.

So, a huge step forward for DEV and for us as a company and we really look forward to moving this project forward through to development and eventual production.

Q2: Now that shipping has started, what are the next steps?

A2: Well, the critical next step and the obvious one that we’ve talked about clearly in that announcement is that we need vest 20% and how does that occur?

Well, it really works by, in essence, us reaching a settlement agreement with the secure bank creditors, once that’s occurs, that is a precondition of the creditor approved JRP – Judicial Review Process. Once that occurs, we reach a settlement agreement, our $2.5 million exists in escrow will be released and we will get our 20% of the assets.

From there, once we’ve got our 20% in the asset, that process of taking it from what is going to be shipping its iron on a regular basis over 18 to 24 months, that iron ore being utilised for the redevelopment of the asset and carrying out studies to feasibility study levels. That will then allow us to finance the project, either through partly a debt project finance, through the stockpiles that are occurring and some equity. After that, once you finance the project, you construct it, you look to production.

Now, from when we get our 20% to when we go into full-time production, i.e., not from the stockpile, we estimate that it’s going to be around 24 months or thereabouts to get to that point.

So that’s an aggressive target but we hope to be able to achieve it once we put our 20% so those are really our next steps.

In the short term, obviously assuming that we get our bank settlement done, with both parties are aligned here to get it done now, we will then be looking at scoping studies to show the value of this asset to our shareholders. That’s going to be a series of constant news flow going here until production, which is all positive.

I think one thing that we’ve really noticed, we should notice, is this asset now, as soon as the shipment has occurred, is effectively profit making and will be so, all things being equal, all the way through to the end of this mine life now.

Q3: What can you tell us about the potential opportunities and benefits that it’ll bring for the wider Amapá community?

A3: That’s a really important part here. I think if we have to look at Cadence Minerals’ ESR – Environmental and Social Responsibilities – we have to consider that this asset, first of all, the port fail in 2014/15 and that caused a complete cessation of activities, a lack of tax revenue locally and I think, on an incremental basis, locally owned contractors around 1,800 to 2000 employees affected by this.

You’ve also got a mine that was not rehabilitated so our plan, of course, is to rehabilitate the mine, provide that level of tax revenue to both at the state level, provide levels of employment and the multiplication effect on that.

In terms of the environmental side, well, of course, like all good mining projects, there is a value that you will build up, to rehabilitate that land at the end of its mine line to effectively a natural state or where it was beforehand. This is an asset that, by rejuvenating it, is going to provide a great level of social benefits locally to the community, to the federal and the state. In environmental sense, in the longer term, it will be a rehabilitation of the asset and the mine, in particular the mine, to a natural state.

The long-term benefits, of course, is that there will be a port there that could be utilised for other aspects and the railway, when rehabilitated, which connects various communities together.

So, there’s some real positive outlook on the environmental, social and governance aspects of this asset as well.

Cadence Minerals plc (LON:KDNC) Chief Executive Officer Kiran Morzaria caught up with DirectorsTalk for an exclusive interview to discuss why it’s chosen the minerals and commodities for its projects, which of them is going to drive shareholder value and the short term upside in terms of progress in Amapá.

Q1: First off, Kiran, can you give us a summary of what the company does?

A1: Cadence Minerals is an investment company, listed on the London Stock Exchange, and it invests primarily in the minerals and metals market, specifically in the lithium, rare earth, and iron ore assets around the world.

Q2: It has an interesting spread of minerals and commodities that you’ve invested in, why have you chosen those in particular?

A2: As I said, we invest in lithium, rare earth and iron ore, one thing they all have in common fundamentally is that they are very critical to the EV market and our view, and our view for a very long time, has been the EV market is where are we going to see a substantial change in the way that we transport ourselves on a day to day basis on the roads. Therefore, there’s going to be an increasing demand with metals associated with that so for example:

• The lithium is, of course, vital to the lithium ion battery, which at the moment is really the only technology out there that is commercialised and cheap enough to penetrate the EV market.
• Also, you’ve got rare earth minerals, specifically neodymium and praseodymium, both of which are vital to the permanent magnets used in the electric motors, our rare earth asset is in those two elements.
• In addition to that, you have iron ore, that’s used to make steel, and lo and behold steel is used to make cars.

So, when we see this increase in EV present penetration, by some estimates, of up to 47% by 2040, you’re going to see an increase in demand of these commodities so for us, that’s a good place to be in terms of the minerals and metals sector. When we look at the projects, you’ll see why they’re really important because they have real key strategic advantage over others out there.

Q3: How has the market faired in these minerals and commodities recently, and how do you see them performing going forward?

A3: Well, that’s an interesting question because a lot of people made an assumption with an economic downturn as a result of COVID, that we may see some poor performance in that market.

Let’s first of all, go to iron ore. Iron ore, in terms of a commodity, has been one of the stellar performers over this COVID period, partly because China came out of lockdown much earlier than everyone else and put a huge stimulus in there. Nonetheless, even despite COVID, we’ve seen, in terms of steel production, around a 9.1% year-on-year increase between this time last year and now so there’s a steady increase in steel production, which then translates into iron ore demand. Importantly, again, looking at projects when we get to them, there’s an increasing demand for high grade material, above 65% Fe content in the ore that you ship to China.

Now, the reason for that is, in essence, it basically is less energy to turn it into the final products, it takes less pollution because of the impurities, that there are less impurities in there, and there’s less waste. Taking all those three into account, I think we’re going to start seeing more of a premium of anything above 65% so I think the driver as I said, between EV vehicles, new vehicles, infrastructure spending around the world and particularly China, we’re going to see a continued strong iron ore price for the foreseeable future. There may be fluctuations, but it’s positive outlook, if you look recently, we saw that the actual majority of demand that came from China was for what they called flux steel, which is ultimately used in consumer goods and vehicles so it’s a positive trend there on the iron ore front.

Now in terms of the lithium front and the rare earth front, I’m just going to make it simplified, we’re just going to put it under the EV vehicle. So, as I said beforehand, we’re seeing now that there was a downturn in the lithium price or LCE, lithium carbonate equivalent price, that predominantly was, we had this very high price, this brought on some hard rock pegmatite producers, which at the moment need around $14,000 a ton for LCE, it’s gone below that, and as a result tail-end of last year and beginning of this year, we’ve basically seen a shutdown of a lot of these hard rock pegmatite producers. However, projects that we are involved in critically have much lower cost of production, around the $3,000/$4,000 per tonne.

All of this lithium is effectively going to be, while there’s enough lithium around the world, there isn’t enough producers of lithium products around the world, based on current rates, a forecasted increases in consumption of lithium through EVs, we’re going to have to bring on 25,000 tons per annum every year, all the way out to 2030/2040. We’re talking a huge increase, we’re talking about 14% CAGR on EV vehicles, we’re talking about basically reaching 40% in about 2040 and around 2030, 20 million cars every year needing electric vehicles, which will need longer ranges etc.

So, the output long-term for lithium is positive and particularly going 2024 onwards.

Q4: You’ve explained the choice of minerals, but just looking at those assets, they look broad geographically and I guess they’re all in similar stages of development. Which of them do you see driving value for the company’s shareholders?

A4: Well, that’s like choosing your favourite child. We’ve been involved with a lot of these projects for a very long time, and some of them more recent so they all have a potential to drive substantial for the company but I think, if we’re talking short-term value, I think we’re looking at Amapá.

Fundamentally, Amapá is an iron ore asset in Brazil, and we could go to 27% for $6 million and when it was run by Anglo American the full 100% valuation was closer to book value, was $600 million. So, in terms of a potential upside, the way that I look at it, we’re buying a price of an early exploration project but we’re getting a not fully functional mine but a very de-risk asset. So, in terms of short term value here, what we’re aiming to do is within 18 months of our first shipment of iron ore, which comes from stockpile that’s already there, is to be 18-24, is to be into full time production.

The great thing about this asset, because it’s an old asset we’re rehabilitating, we’re short cutting a lot of the risks historically so we definitely know there’s a historic resource and as the scoping study has been advancing, I’m really positive that that will be put into a full JORD compliant resource without a further drill hole being drilled. We have a processing part, a beneficiation part, which the product’s going to be doing 65% or thereabouts quality product, which as I mentioned beforehand is pretty vital to the market. It has a railway owned by the company that will take it to a port owned by the company so there’s a resource there, you can produce material and it can be shipped to the docks. More importantly, because this material was produced and it was being produced around the six million tonnes a year mark, we know there’s a market, we know there are Chinese buyers and international offtakers or trade partners who would buy this product and market it for us and it’s a good product using furnaces historically.

So, we’re looking to get 4.5 million tonnes out of it in the longer term, in the short term, as I said, many times our critical drivers are, we’ve agreed the bank settlement terms, we’re now going through the legal framework and paperwork to get that done. Either before then, depending on the agreement with banks, or just after then, we will be shipping material iron ore from the stockpile, which will generate revenue for the company, and that means we’re cash generative. After that, we’re talking about getting the scoping study finalised and published, it will provide shareholders with a clear understanding of value, timeline, capital costs to a scoping study level, which is about 40% accuracy and then we’ll look at the licenses, getting all the licenses and that’s when we put all our next tranche of three and a half million in. Effectively, by that time, we will have a scoping study, valuation, be shipping out iron ore, have all the licenses to operate and have a much better understanding and we’ll have 27% of that. We’ll then go through the recommissioning study all the way to from shipment of iron ore, about 18- 24 months, to production.

So that to me is a really short timeline to get to production and deliver value to the company’s shareholders.

Q5: We spoke earlier about some of Cadence Minerals assets, what can you tell us about your other assets?

A5: As I said, it’s hard, it’s like picking your favourite child. When I look at the other assets, I suppose the best way to look at is where I perceive the market is valuing them in terms of proportionate gap.

So, the next one is European Metals Holdings, we’ve got a 15% stake in that, again, and this is going to be a common theme as we go through the assets, we can see where they are there. They’re a bankable feasibility study, they’ve got a solid partner in CEZ who has was funded €29 million to take 51% of the company, to take it all the way to basically a construction decision. When you look at the EMH deposit, which it’s Cinovec, it’s the largest in Europe, it’s 7.7 million tonnes of lithium carbon equivalent, the next one below that is 1.78 million tonnes.

It has a low cost curve so about $3,300 per tonne in terms of cost, as opposed to lithium hydroxide, they’re planning on doing it for $12,000 a tonne in terms of revenue and it’s strategically located, it’s located in Czech Republic on the border with Germany. You just have to look at that address in terms of the people that surround it, you have Tesla building a giga factory, you have Volkswagen pushing into electric vehicles requirement, you’ve got Skoda. If you then look at the intermediary producers, you have LG Chem, Samsung, I could go on, but their battery production centre is all going to be around that area, whether it be in Croatia, Czech Republic, Germany so it’s a critical place. The European Union are very clear that they, I forget the quote, but basically to stay competitive, to stay bringing our green energy policy, we have to be sourcing our materials from Europe and therefore the Czech Republic and the largest hard rock deposit Cinovec in Europe, I think is critical and part and parcel of that plan.

So, I really look froward to them doing their bankable feasibility study, and they’ll be producing samples to send off to potential offtakers and offtakers that hopefully are strategic relationships going forward so EMH is another part of it.

If we then look at MacArthur Minerals, we’ve got a smaller stake, probably under 2% now, because they did a recent share issue and resulted in some conversions of convertible loan notes but again, we look at MacArthur Minerals, it’s a very large deposit, it’s a sort of “generational” as they quote it, type of iron ore, high grade material. They’ve progressed again in their DFS, they’re progressing that further, they have an offtake partner with Glencore, I could really go on in terms of where they’re going to. I think off the top of my head, they’re looking for production in a relatively short period of time, I think they were looking at basically Q1 2024 so that’s interesting and we look forward to seeing the updates as they come from there.

The other ones are really two joint ventures we have, they’re basically 30% stakes in the Yangibana Rare Earth deposit and 30% of part of the Sonora Lithium Project. The Sonora Lithium product, again, has similar attributes to EMH, they have a very large deposit, one of the largest in the world, 8.8 million tonnes of lithium carbon equivalent and lower cost quartile. They’re in the bankable feasibility stage, they’ve got a great partner with Ganfeng, one of the premier lithium producers in the world, they own about 29% of the company and other large stake that the asset level. They’ve got a great team who have taken this all the way from basically an early resource and all the way to now, a bankable feasibility study ongoing, getting the financing and construction ongoing. So that’s really positive on that one.

And last of the rare earth elements with Yangibana, we had 30% free carry on that and they’re very much in a similar position. When we start to think about the size of this deposit, and I think some people don’t realise this, I’m going to get some quotes here from their website, in terms of the type of product, it’s all neodymium and praseodymium, of which their assets 75% to 100% higher than any other in the world. Their capex is 50% lower than any in the world and when they get to full production it represents 6%-7% of the market share and they have also made great progress. They’re now expanding their exploration and they’ve got almost AU$300 million of financing ready.

So, all of these assets are in great position in terms of risk and return. I would add that both Sonora and Yangibana are 30% JV, when we look at the mine, it will probably be mined out in the 12-14 year period, once Yangibana has partnered with BFS.

But overall, these assets are in a great place in terms of risk return and some long term keepers there as well as some short term upside in terms of progress in Amapá and others like it.