Outlining the multi-bagger potential for Cadence Minerals (undervalued EV Metals and Lithium play with transformative Iron Ore project deal)
AIM listed Cadence Minerals is an investment company that has public and private investments in Lithium, Rare earth metals and Iron ore - I believe the market has undervalued this company due to past performance associated with the prior lithium boom and bust cycle. Over half of its market cap is covered by public equities and cash, has no debt and the huge potential value of its private assets are not priced in.
Company Presentation (June 2021)
Ticker: KDNC (AIM Listed)
CEO: Kiran Morzaria
Market Cap: £25m
Share Price: 17p
Shares Outstanding: 148.65m Yahoo Finance
Short term target: 45p (164%)
Long term target: 120p (600%)
Directors ownership: 1.82% (2.7m shares) Company Website
Directors options at 29p (7.2m shares) Announcement
The company is awaiting a bank creditor agreement to take 27% ownership of an Iron Ore mine in Brazil (including private port and railway) for just $6m. This was formerly owned by Anglo American with an impaired valuation in the region of $660m (£485m) and previously valued when fully operating at $1.2bn. Cadence has already funded $2.5m which is held in escrow ready to take a 20% stake (stage 1). The mine is going through a judicial recovery after going bankrupt due to a port collapse. Cadence Minerals have agreed a deal with creditors to bring the mine back to operations along side joint venture partner Indo Sino Trade (a Singapore based company). This deal would be transformative for the company as outlined in their annual report. The CEO is highly confident the deal will be completed however the market doesn’t appear to appreciate the significance of the opportunity and some impatience has crept in due to the time it has taken for the banks to get the required approvals. The mine, port and railway requires refurbishment but has approximately 1.3m tonnes of Iron ore stockpiles that can be sold to partially fund the refurbishment. Cadence has the first right of refusal to take 49% ownership of the mine if the JV partner seeks further investment.
In the mean-time the courts in Brazil have stated that the banks cannot be allowed to prevent the refurbishment and recovery of the mine and have allowed the mine’s operating company “Dev Mineração” to sell up to $20m in stockpiles (almost $10m shipped so far) and refurbishment work has already started this has included recruitment of key posts. Glencore were the buyers of the initial shipments of ore which was shipped to China and they had previously made a bid to buy the mine. The labour force in Brazil is very low cost and even lower recently due to the BRL exchange rate. The mine is also able to produce high grades of ore which attract a premium and are lower CO2 when smelted.
Reuters: " Anglo said in its 2011 annual report that Amapa was expected to produce 5.5 million tonnes of iron ore this year. It contributed $120 million of Anglo’s operating profit in 2011, more than twice that generated by Anglo’s nickel division. "
The CEO is “highly confident” that the deal with the banks will be done and is also a Portuguese speaker (Brazil speaks Portuguese). The CEO has just quarantined for two weeks to head out to Brazil to work on the project and gave an interview prior to heading out there.
Cadence Minerals has 30% ownership of part of the Sonora Lithium project in Mexico. Ganfeng are currently undertaking a buyout of Bacanora Lithium (LSE:BCN) which held 50% of the initial tenements to be mined (Named La Ventana 1 and 2). Cadence owns 30% of the “El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 1 concessions” which are due to be mined from year 9 of the 19 year plan with a total of 12% of the mining from this area. Given the lithium price boom it is likely that Ganfeng will want to accelerate the project and increase the production rates shortening this timeline. In my view it is highly likely that once the Bacanora Lithium deal closes Ganfeng will want to buy the 30% Cadence owns soon after to take 100% of the project. This likelihood has been further enhanced by the recent news that Mexico will no longer allow private companies to be granted lithium mining leases this is not expected to affect the Sonora project giving it an almost monopoly status among private lithium projects there and increasing its value. It is unclear exactly how much Ganfeng would be willing to pay for this asset but my personal bare minimum estimate is at least £20m but probably a lot more (almost the entire market cap of Cadence).
Cadence owns 30% of some tenements in joint venture with Hastings Technology Metals (ASX:HAS) - this is a Rare Earth Metals project and a critical resource for the EV boom as the magnets go in to electric motors. The Yangibana project is funded and due to begin construction but it is currently unclear when the areas that Cadence own will be mined. This makes it difficult to value, Hastings have a market cap of AU $400m (£213m) so I give a bare minimum value of around £5m for this asset other company research reports have valued this higher.
Australian Lithium Project (Lithium Technologies / Lithium Supplies Option deal with Castillo Copper)
Cadence owns 29% of a Lithium exploration company in Australia, it has recently announced a deal with Castillo Copper to transfer ownership for equity which is worth between £153k and £461k of Castillo Copper shares (LSE:CCZ) dependant on drilling results and the option being taken by Castillo.
|European Metals Holdings||ASX:EMH LSE:EMH NASDAQ: ERPNF OTC: EMHLF NASDAQ: EMHYY||~9.9% Owner Source RNS||17,463,864||72p||£12.57m (05/10/21)|
|Macarthur Minerals||TSX-V: MMS ASX: MIO OTCQB: MMSDF||~1% ownership||N/K||AUD $0.44||£337k (30/6/21)|
|Celsius Resources||ASX: CLA||£103k (30/6/21)|
|Eagle Mountain Mining||ASX: EM2||£153k (30/6/21)|
|Charger Metals||ASX: CHR||now 2.97% ownership||£109k (30/6/21)|
My short term price target of 45p is based on the market realising the potential of the assets and applying a 50% risk factor on the deal, the long term target of 120p is based on the value of the Amapa Mine deal once announced as it moves towards production.
The equity portfolio limits the downside risk and the upside potential is massive.
If you are interested in following company news and updates they are available on the Cadence Minerals Subreddit r/CadenceMinerals.
Disclaimer: I own shares in the company, please do your own research.