Since evolving from Rare Earth Minerals in early 2017, AIM listed Cadence Minerals (KDNC) has offered investors a proposition largely based on investments into selected lithium and base metal projects around the globe.
Taking cornerstone stakes in projects such as the Cinovec Lithium and Tin Project in the Czech republic and the Sonora Lithium Project in Mexico has seen the company portfolio exhibit excellent returns. However, the sell-off in Lithium stocks over the last two years has seen the Cadence share price drift in line with the underperformance of public investments in the sector.
December 2017 saw a strategic shift to invest and acquire assets directly, with the acquisition of hard rock lithium assets in Argentina. Following subsequent investments into three lithium projects in Australia, the iron ore supply squeeze in late 2018 threw up an opportunity in Brazil that did not go unnoticed by eagle eyed Cadence management.
Formerly owned by Anglo American (AAL) and Cliffs Natural Resources, the Amapá iron ore project is a large-scale iron open pit ore mine with associated rail, port and beneficiation facilities. Based in Northern Brazil close to the Atlantic, Amapá commenced operations in December 2007, and prior to its sale in 2012 due to a collapse in iron ore prices, Anglo American valued its 70% stake at $462m. Back then the mine was selling ore globally to Europe, USA and China.
With some $60m of iron ore stockpile sitting ready for shipment at the port, Cadence CEO Kiran Morzaria set up a joint venture company Pedra Branca Alliance Pte Ltd (PBA) with Singapore based commodities group IndoSino Pte Ltd to acquire the Amapá holding company.
A judicial restructuring plan submitted by PBA has just been approved, which astonishingly will see Cadence acquire, through PBA, a 27% stake in the Amapá iron ore project for just $6m.
“Opportunities such as this come along once or twice in a lifetime,” says Morzaria.
“To start a project on the scale of Amapá would require little short of $1bn capex. We (Cadence) will own 27% of a project, which when recommissioned should generate over $136m EBITDA per annum for at least 14 years, plus we will have the right and first refusal to acquire up to 49%.”
PBA expects to start shipping the stockpile by the end of this year, which will see a net $60m into the coffers to part complete the $168m investment required to recommission the mine, railway and port.
Rehabilitation of the mine, railway and port is expected to be completed by 2021, with first new production in 2022. A production ramp up will see 5.3 million tonnes of iron ore produced per annum by 2024.
More significantly, mine net revenues after shipping is forecast to be approximately $265m per annum, with EBITDA of approx $136m per annum based on a conservative iron ore price of $61 per tonne. Currently iron ore prices are closer to $90 per tonne.
Of course there is another benefit in rehabilitating the Amapá mine. The local economy will be rejuvenated, creating hundreds of jobs and employment opportunities, along with new funding for local schools and hospitals.
“Previously Amapá’s output amounted to a sizeable chunk of the local economy,” adds Morzaria.
“Bringing the mine back to life will provide a huge boost to the region.” For AIM minnow Cadence, which currently trades on an asset backed market cap of just £9m, the opportunity and the numbers are hugely impressive and potentially transformational. Punching indeed!
Notes:
For full details on this story, the formal RNS announcement is here:
https://www.investegate.co.uk/cadence-minerals-plc–kdnc-/rns/approval-of-judicial-restructuring-plan—amapa/201908300700056390K/
Cadence Minerals website: https://www.cadenceminerals.com/
Cadence Minerals plc
+44 (0) 207 440 0647
Andrew Suckling / Chairman
Kiran Morzaria / CEO
Brand Communications
+44 (0) 7976 431608
Alan Green