Cadence Minerals (AIM/NEX: KDNC) is pleased to announce its final results for the year ending 31 December 2022. The full Annual Report and Audited Financial Statements will be available on the Company’s website at https://www.cadenceminerals.com/ and posted to shareholders by 30 June 2023.
CHAIRMAN’S STATEMENT
I am pleased to present the Company’s Annual Report and Audited Financial Statements for the year ended 31 December 2022.
The global macroeconomic outlook continues to be unpredictable and difficult to navigate. The expected recovery and bounce back from pandemic-era conditions have largely been tempered by fast-rising interest rate and inflation forecasts. Coupled with an increasing focus on China’s status as an adversary rather than just a competitor, the global outlook remains mixed and confusing. Over a year has passed, and the Ukraine invasion has now become an entrenched war, with many of the initial supply disruptions looking set to become semi-permanent dislocations. The Cadence Minerals portfolio is both balanced, diversified and constructed to anticipate supply and demand shocks. As such it should be well placed to weather this ongoing uncertainty.
Although the above suggests caution and a degree of pessimism, there are actual positives emerging. Recent economic forecasts suggest continued stimulus and support for infrastructure projects globally. Inflation, by some metrics, may have peaked, and the transformation to an EV world is gaining even more momentum. Recent merger and acquisition activity suggests an increasing awareness among multinational companies to integrate critical and strategic materials into their respective portfolios.
Market observers will be aware of an increase in the number of potential nationalisations across specific strategic industries and the resources sector. The net result is of course a greater focus on the resource sector, particularly while major resource companies continue to ramp up capital allocation into the EV material space to meet the sea change in demand for raw materials.
On behalf of the Board of Directors (Board) and management, I thank all our advisors, consultants, service providers, and especially our shareholders for their support throughout the year. The Board and company have continued site visits, viewed potential investment opportunities, and attended many industry conferences.
I am always reminded never to approach a marathon by counting every inch; it is a very hard way to keep and maintain perspective. Investing in the resource space really is a marathon versus a sprint. In every area, it continues to surprise how long permitting, licenses approvals, environmental studies, and raising capital can take.
Many times, the Board has stated “we will look for opportunities to unlock and discover value across our portfolio.” I am particularly grateful that our patience has been rewarded with the continued success and maturing of many of our portfolio companies. The successful listing on the ASX of Evergreen Lithium is a good case in point and the Board sends its congratulations to all who made that listing possible.
The Board sees further potential within our private and public holdings for further listings and potential transactional activity to bolster Company returns. In the wake of such a challenging year, we send our congratulations and support to our portfolio companies for their continued success. As the Cadence investment portfolio continues to mature, we will continue our search for new, accretive investments with the same methodology and rigorous diligence as before in order to assure a continued supply of diversified growth opportunities.
We have a clear path ahead for our flagship Iron Ore investment at Amapa, Brazil. The publication of initial and preliminary studies, and the DEV team’s liaison with federal, state, and local authorities, continues to unlock the potential of this project. The Board thanks our JV partner, lawyers, and consultants for their hard work in negotiations, settlements, and the operational success emanating from this investment.
The challenge of a dislocated economic recovery and the prospect of a slowing Chinese economy, highlighted by the likelihood of steel production at or below one billion tons, has proved to be a continual challenge to the Cadence share price. However, due to the likelihood of support and stimulus coupled with acquisition and investment in the resources sector, (particularly related to the EV transition), we expect the constitution of the Cadence portfolio to remain robust and focussed on the strategic and critical sectors of the economy.
I would like to personally thank my fellow Board members, staff, and partners, all of whom constitute the Cadence Community and, of course, all of our shareholders for their encouragement and continued confidence in the company
Andrew Suckling
Non-Executive Chairman
CHIEF EXECUTIVE OFFICER SUMMARY
I am pleased to present the audited results for the year ended 31 December 2022, along with the Strategic Report that provides a comprehensive review of our business activities during the year. It is important to note that these results reflect the historical position of the Company’s progress and financial standing, and we have included additional information on key post-year-end events in the Strategic Report.
In reviewing the performance of Cadence during the year, it would be fair to say that our two portfolios performed quite differently despite the solid operational performance of the underlying assets and the long-term outlook of the commodities these projects intend to extract. While we delivered excellent operational results and strong investment returns within our private portfolio, our public traded portfolio decreased substantially, despite the underlying assets delivering to their goals.
In our private portfolio, the Amapá iron ore project remained the primary focus for Cadence’s management. In my capacity as a director of the joint venture, Cadence was heavily involved in the operational progress we have seen to date, which cumulated in the delivery of a robust Pre-Feasibility Study (“PFS”), which confirmed the project’s strong economics. To date, our investment has been circa US$9.3 million for 30% of the Amapá iron ore project; the net present value of 100% was estimated in the PFS at US$949 million.
In addition to the progress made at Amapá, the Company increased the investment returns by converting some of its passive private investments into public traded equity. These returns were achieved via two asset sales, firstly our 31.5% interests in Lithium Technology Pty Ltd and Lithium Supplies Pty Ltd (“LT and LS”) were sold to Evergreen Lithium, and secondly, our 30% interest in licenses within the Yangibana Rare Earth Project (“Yangibana Project”) were sold to owner/operator Hastings Technology Metals. These transactions were completed after a year-end, so the financial returns are not reflected in these financial statements. Cadence has invested approximately £1.7 million in these assets, and our sale price into the equity of the two public companies was the equivalent of £7.4 million, representing a 335% cumulative return on our investments.
In contrast to these achievements, the performance of our publicly listed portfolio tracked our largest holding, European Metals Holdings (“EMH”), which was down some 49% over the year despite the excellent progress made in developing the asset. EMH’s price depreciation came off multi-year highs achieved during 2021 and followed the general trend of the AIM basic resource index, which was also down year on year, reflecting the risk-off approach we have seen with investors since mid-Aug 2021.
These negative year-over-year returns contradict the fundamental drivers in our portfolio, namely the incredible growth of the lithium raw material market and the stabilisation of the iron ore market. Therefore, the driver for the lacklustre performance appears to be a weakening in equity funds flow. Investment fund flows were the weakest in eight years as investors turned their backs on UK equity funds in 2022, selling a record £8.38 billion. In summary, Investors have sold UK equity and sought the safest havens, taking refuge in cash and perceived lower-risk investments.
As previously stated, the lithium market has continued to expand rapidly. The global lithium-ion battery manufacturing industry’s expansion to feed the transportation sector’s electrification fuelled this growth. This expansion results from a concerted shift toward decarbonisation and net zero targets set by the private sector and governments worldwide. The IEA predicts that demand for EV batteries will rise from around 340 Gigawatt hours (GWh) today to over 3,500 GWh by 2030, with the industry requiring 50 additional lithium mines by then. These macro drivers should continue to support the fundamentals behind our lithium and rare earth investments.
Within the iron ore market, although we saw a softening in the first of the year, it recovered by the end of 2022, with the 62% Fe Platts closing at circa US$117 per dry metric tonne (“dmt”). Both short and longer-term prospects for iron ore are driven by China, given that the nation is the world’s biggest steel producer and currently buys about 70% of global seaborne iron ore.
In the coming year, we look forward to further developing the Amapa Iron Ore project, progressing the permitting pathway, and, if possible, securing a joint venture partner to co-develop the asset.
With our other investments, we look forward to developments at Evergreen Lithium, which given its proximity to the Finnis project, represents the most prospective investment in our portfolio. Hastings and EMH are well advanced in their development cycle, and we look forward to seeing the construction of the beneficiation plant at Hastings in Q3 of this year and the publication of the EMH Definitive Feasibility Study in Q4 of this year.
As discussed in the Investment Review, Cadence’s ambition is to mitigate the need for external capital by growing and reinvesting the profits from our assets under management. We believe we are on our way to achieving this goal with our investments over the last three years of £8.64 million being funded by £7.77 million of sales in our public portfolio and £0.87 million from equity capital. Excluding the equity funding for our investments over the last three years Cadence has raised a total net funding from external sources of £3.72 million. At the time of writing, the realised profit since inception from the current public portfolio is £5.27 million and a total unrealised and realised gain is 338%.
I want to express my gratitude to the Cadence team and our investee companies, who have all worked tirelessly to bring the Company and its investment to their current position. We believe concentrating risk across a few crucial assets and commodities will pay off.
Kiran Morzaria
Chief Executive Officer
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