Cadence Minerals #KDNC – Interim Results for the six months ended 30 June 2019

Cadence Minerals plc announces interim Results for the six months ended 30 June 2019

HIGHLIGHTS

·    Cadence entered into an investment agreement to acquire up to 27% of the Amapá iron ore mine, beneficiation plant, railway and private port.

·      Before its sale in 2012 Anglo American valued  (impaired) its 70% stake in the Amapá iron ore mine at  US $462m ( 100% US $600m).

·      During its operation, the mine generated an annual operating profit of up to U$171 million (100%).

·      The total historic mineral resource contains an estimated 348 million tonnes (“Mt”) of ore @ 38.9% iron content (“Fe”).

·    Macarthur Minerals (Cadence equity ownership approx. 9%) refocused efforts on their iron ore assets and secured a binding Life-Of-Mine Off-Take Agreement with Glencore International A.G

·    European Metals (Cadence equity ownership approx. 19%) published a pre-feasibility study for the production of lithium hydroxide, increasing the net present value of the project 105% to US$1.1 BN.

INVESTMENT REVIEW

Amapá, Iron Ore Mine (“Amapá”)

In June this year Cadence Minerals entered into a binding investment agreement (“the  Agreement”) with Indo Sino Pte. Ltd. (“Indo Sino”) to invest in and acquire up to a 27% interest in the former Anglo American plc (“Anglo American”) and Cliffs Natural Resources (“Cliffs”) Amapá iron ore mine, beneficiation plant, railway and private port (“Amapá Project”) owned by DEV Mineração S.A. (“Amapá”).

The Amapá Project is a large-scale iron open pit ore mine with associated rail, port and beneficiation facilities and commenced operations in December 2007. Production increased to 4.8 Mt and 6.1 Mt of iron ore concentrate product in 2011 and 2012 respectively.

A summary of the asset is as below:

·      Before its sale in 2012 Anglo American valued its 70% stake in the Amapá Project at US$866 million (100% 1.2 billion) and after impairment valued it at  US $462m in its 2012 Annual Report ( 100% US $600m)

·      During its operation, the mine generated an annual operating profit of up to U$171 million (100%)

·      The total historic mineral resource contains an estimated 348 million tonnes (“Mt”) of ore @ 38.9% iron content (“Fe”)

·      The ore is beneficiated to 65% Fe Pellet Feed and 62% Fe Spiral Concentrate

·      Based on available historic mine plans and an independent consultant review it is expected that at full production the Amapá Project has a mine life of 14 years and at full capacity is targeting to produce up to 5.3 Mt of Iron Ore per annum

·      Subject key preconditions being met, the planned shipment of a 1.39 million tonne stockpile is scheduled to commence in December 2019. It is estimated that these stockpiles have a net realisable value of approximately US$ 60 million, which will be reinvested in the restart of the Amapá Project

·      Potential for the mine and existing infrastructure to be brought to market swiftly with mining and processing anticipated to restart in 2021 subject to the grant of the necessary permits, regulatory consents and project financing.

To acquire its 27% interest, Cadence will invest US$ 6 million over two stages. The first stage is for 20% of the JV Co the consideration for which is US$2.5 million. The second stage of investment is for a further 7% of JV Co for a consideration of US$3.5 million. Should Indo Sino seek additional investors or an investment in the JV Co the agreement also provides Cadence with a first right of refusal to increase its stake to 49% in the JV Co.

Our investment is conditional on several key preconditions the first is the approval of the judicial restructuring plan (“JRP”), which was completed at the end of August. Once the remaining pre-conditions relating to the reinstatement of a concession on the railway licenses and bank creditor arrangements have been met, the US$2.5 million investment placed in the judicial trust account will be released, and Cadence will own 20% of the Amapá iron ore project. This will enable the start of the shipping of the iron stockpile.

The approval of the JRP and the fulfilment of the preconditions outlined above will result in Cadence’s and IndoSino’s joint venture company Pedra Branca Alliance Pte Ltd. (“PBA”) owning 99.9% of DEV Mineração S.A. (“Amapá”). DEV Mineração S.A. is the owner of the Amapá iron project.

Cadence’s next stage of investment will be a further investment of US$3.5 million on the grant of all operational and environmental licenses for the Amapá Project, at which point Cadence will own 27%.

As part of the JRP Amapá submitted an outline of an operational and financial plan that Amapá intends to implement to bring the project back into production, which included the following

·      The total initial estimate of capital investment of approximately US$168 million, of which it is estimated US$61 million will be spent on port rehabilitation and US$47 million to be spent on plant recommissioning.

·      Rehabilitation to be completed by the end of 2021 with new production in 2022. Full production by 2024 of 5.3 million tonnes (“Mt”) of iron ore per annum.

·      At full production and using US$61 per tonne of 62% Fe Amapá is forecast to have:

·      an average net revenue after shipping of US$266 million per annum,

·      and an average EBITDA of US$136 million per annum.

European Metals Holdings Limited (“EMH”)

Cadence has been investing in European Metals since June 2015. As of the date of this document, Cadence holds approximately 19% in the Cinovec deposit in the Czech Republic through a direct holding in the share capital of European Metals that owns 100 per cent of the exploration rights to the Cinovec lithium/tin deposit. The Cinovec lithium and tin deposit is located in the Krusne Hory mountain range. The deposit that straddles the border between Germany and the Czech Republic and in Germany, it is known as the Zinnwald deposit (50% owned by Bacanora Lithium Plc ). The district has an extensive mining history, with various metals having been extracted since the 14th Century.

During the period EMH made significant progress. Drilling continued at the site with five of the eight-hole programme completed; this drilling programme was carried out to define the first two years of mining within the Cinovec-south area. The results of this programme have either been in line with or exceeded, EMH’s expectations particularly with regard to the tin intercepts.

In addition to the drilling results, EMH published a pre-feasibility study on producing battery-grade lithium hydroxide for as an alternative to battery-grade lithium carbonate. The result significantly enhanced the forecast economics of the Cinovec Project:

Highlights of the study are: (all $ figures in this release are US Dollars and increases refer to the 2017 PFS Lithium Carbonate study):

·           Net estimated overall cost of production post-credits: $3,435 / tonne LiOH.H2O

·           Project Net Present Value (“NPV”) increases 105% to: $1.108B (post-tax, 8%)

·           Internal Rate of Return (“IRR”) was increased 37% to 28.8% (post-tax)

·           Total Capital Cost: $482.6M

·           Annual production of Battery Grade Lithium Hydroxide: 25,267 tonnes

·           Studies are based on only 9.3% of reported Indicated Mineral Resource and a mine life of 21 years processing an average of 1.68 Mtpa ore

·           The process used to produce lithium hydroxide allows for the staging of lithium carbonate and then lithium hydroxide production to minimise capital and startup risk and enables the production of either battery-grade lithium hydroxide or carbonate as markets demand

After the period end, EMH entered into an agreement with CEZ Group(“CEZ”), one of Central and Eastern Europe’s largest power utilities, to conditionally provide a EUR 2 million finance facility by way of a convertible loan. CEZ is currently conducting due diligence on the Company and Project. The successful outcome of the due diligence process could see CEZ become European Metals’ largest shareholder and co-development partner for the Cinovec Lithium/Tin Project through conversion of the convertible note and subsequent additional investment.

Macarthur Minerals (“Macarthur”)

Cadence holds approximately 9% of the equity in Macarthur. Macarthur has three iron ore projects in the Yilgarn region of Western Australia. The Company has also established multiple project areas in the Pilbara, Western Australia for conglomerate gold, hard rock greenstone gold and hard rock lithium. In addition, Macarthur Minerals has significant lithium brine interests in the Railroad Valley, Nevada, USA.

During the period Macarthur focused its efforts on its Iron Assets in Western Australia.

The main highlights for Macarthur over the period were:

·       Opened an up to US$6 million institutional convertible note offer to fund the production of a Bankable Feasibility Study on Macarthur iron ore projects

·       Binding Life-Of-Mine Off-Take Agreement with Glencore International A.G for the Lake Giles Iron Ore Project for approximately 4 mtpa for the first 10 years on project start up

·       Macarthur entered into exclusive negotiation agreement with Aurizon for rail haulage services for the Lake Giles Iron Ore Project

·       Infill drilling program planned for the Moonshine magnetite deposit

·       Engineering firm Engenium commissioned to revise NI 43-101 compliant technical report and refine operating and capital costs of the hematite and magnetite projects

·       Applications have been made for three additional prospective iron ore tenements. These were properties released by Cliffs Natural Resources and are adjacent to the iron ore operations of Mt Jackson and Deception Mines

Bacanora Lithium Plc (“Bacanora”)

At the period end Cadence owned less than one per cent of Bacanora’s equity and a 30% stake in the Mexalit S.A. de CV (“Mexalit”) joint venture which forms part of the Sonora Lithium Project in Northern Mexico.

Bacanora has two lithium development assets, the Sonora Lithium Project and the Zinnwald Lithium Project. Bacanora has a 50% interest in, and joint operational control, of the Zinnwald Lithium Project. Zinnwald represents a strategic asset located near a thriving market for lithium and energy products.

Bacanora’s principal asset is the Sonora Lithium Project in northern Mexico. The asset has Measured plus Indicated Mineral Resource estimate of over 5 million tonnes (‘Mt’) (comprising 1.9 Mt of Measured Resources and 3.1Mt of Indicated Resources) of lithium carbonate equivalent (‘LCE’) and an additional Inferred Mineral Resource of 3.7 Mt of LCE, Sonora is regarded as one of the world’s larger known clay lithium deposits.

Bacanora continued to progress the strategic investment by Ganfeng Lithium Co., Ltd. (“Ganfeng”) during the period and signed the investment agreement at the end of June 2019, the key terms of which were:

·           Cornerstone strategic investment of 29.99% in Bacanora for £14,400,091 by Ganfeng

·           Project level investment of 22.5% in Sonora Lithium Ltd , the holding company for the Sonora Lithium Project, for £7,563,649

·           Additional long-term offtake at a market-based price per tonne

·           Gangfeng will complete a review within six months of the EPC engineering design and capital costs of Sonora Lithium Project with a view to reducing costs and accelerating the timetable

·           Gangfeng will provide a plant and process commissioning team to assist Bacanora in delivering first production in 2021

At the time of publishing Ganfeng was awaiting final approval from Chinese authorities to make its investment.

Yangibana Rare Earth Project

Cadence owns a 30% free carried interest in the Yangibana North, Gossan, Hook, Kanes Gossan, Lions Ear and Bald Hill North rare earth projects in Western Australia. These projects form part of the larger Yangibana Rare Earth Project (“the Project”). The free carry is up to the commencement of the feasibility study.

A considerable amount of work over this period has been to define the geological resource and reserves, optimise the process flow, carry out detailed design and engineering work required for the setting up of a process plant, negotiations on equipment supply and no less crucial securing project finance. An early works permit was granted which allowed the initiation of infrastructure work and bring on-site a 340 rooms accommodation camp ready for occupation when mine construction commences.

On geology, there was a 34% increase in probable ore reserves to 10.35 million tonnes at 1.22% TREO including 0.43%Nd2O3+Pr6O11, supporting an initial 11 years operational life for the project based on the JORC certified resource of 21.7 million tonnes.

The current mine plan and production targets set out by the operator incorporates 10.35 million tonnes of Probable Ore Reserves, of which 1.96 million tonnes is part our joint venture asset, Yangibana North, which according to the operator’s production targets are scheduled to be mined from year 8 to year 14. These production targets include indicated mineral resources, hence the longer mine life.

Lithium Assets in Australia

In March this year Cadence announced that it has agreed to acquire three highly prospective assets in Australia that are in regions with proven high-grade lithium mineralisation. The mechanism to facilitate this acquisition was via varying binding investment agreements in place with Lithium Technologies Pty Ltd (“LT”) and Lithium Supplies Pty Ltd (“LS”) that Cadence entered on 11 December 2017 to acquire up to 100% of six prospective hard rock lithium assets in Argentina.

Highlights of the assets include:

·     The acquisition covers three projects – Picasso (Western Australia – WA), Litchfield (Northern Territories – NT) and Alcoota (NT) – that are located  in regions with proven lithium mineralisation and supportive mining infrastructure

·     The Picasso Project (license granted) is near Alliance Mineral Assets’ (ASX: A40; SGX: 40F; “AMA”) high-profile Bald Hill Mine in WA (note: AMA recently completed a 50:50 A$400m+ merger with delisted Tawawa Resources [ASX: TAW] & raised $40M to develop the  asset base)

·     Demonstrating exploration upside for Picasso, the Bald Hill Mine is producing a spodumene concentrate and has a JORC (2012) compliant mineral resource of 26.5Mt @ 0.96% Li2O; probable ore reserves at 11.3Mt @ 1.01% Li2O

Preliminary exploration work was concluded in April with positive results, and Cadence increased its stake from 4% to 24%. Early exploration work will begin soon to test and sample targets that have been identified during the preliminary exploration.

Other Investments

Cadence also retains equity positions in Sagon Resources Ltd (formerly Clancy Minerals Ltd) and Auroch Minerals Ltd. The latter being involved in base metal exploration in Australia, in particular, the Saints Nickel Project in Western Australia. Sagon Resources Ltd is currently exploring the Cummins Range Rare Earths Project.

FINANCIAL REVIEW

During the period, the Group made a loss before taxation of £0.28 million (30 June 2017: loss of £4.61 million). This was primarily due to an increase in the value on our portfolio, which offset administrative, financing and share of associated losses totalling £0.96 million.

There was a weighted basic loss per share of 0.003p (30 June 2017: loss per share 0.059p)  Foreign currency translation differences marginally decreased comprehensive loss for the period to £0.24 million (30 June 2017: total comprehensive loss of £4.66 million).

Administrative expenses decreased by £0.11 million compared to the same period last year; this decrease was driven by cost-cutting measures across the board.

The total assets of the group increased from £18.33 million at 31 December 2017 to £19.39 million. Of this amount, £2.33 million represent the market value of our available for sale investments at the period end. The reduction in the total assets is as a result of the decrease in the value of Bacanora equity, which was the primary driver for the reduction of available for sale asset value.

It is important to note that this does not include our investment in EMH. Our investment in EMH is classified as an investment in an associate and held at a value of £12.2 million. EMH is classified as such because we hold approximately 19% and Kiran Morzaria, the Chief Executive Officer of Cadence is also a Non-Executive Director of EMH.

Our borrowings of £3.71 million as at the 31 December 2017 reduced to £2.06 million by the end of the period as we paid back our convertible loans.

During the period, our net cash outflow from operating activities was £0.52 million compared to £0.45 million during the same period last year. We invested £0.27 million in Amapá, as part of our due diligence and JRP costs and our financing costs were some £0.19 million. We disposed of £1.42 of our available for sale investments which predominantly was our Bacanora equity. These sales were used to pay back some £1.59 million of our convertible loan during the period. We raised some £1.30 million of equity during the period which after netting of the aforementioned costs and revenue from the sale of our equity stake yielded resulted in a cash balance at the end of the period of £0.54 million

CADENCE MINERALS PLC

STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2019