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Cadence Minerals Plc: THE INVESTMENT CASE

Cadence will use key stakes in major lithium growth companies as platform for further growth

Cadence's portfolio of lithium assets provides investors with exposure to several top-tier assets
Cadence will use key stakes in major lithium growth companies as platform for further growth
INVESTMENT OVERVIEW: KDNC The Big Picture
Lithium demand is growing at a rapid rate

“We take a very active approach towards our involvement in our investments,” says Kiran Morzaria, chief executive of Cadence Minerals PLC (LON:KDNC, OTC:KDNCY).

“We ask what can we add here? And we go in as directors, as potential financing partners, and as supportive shareholders.”

And, although it’s not all down to the involvement of Cadence, there’s no denying that the twin pillars of its investment portfolio, in Bacanora Minerals Ltd (LON:BCN, CVE:BCN) and European Metals Holdings Ltd (ASX:EMH, LON:EMH) have both done very well.

“All these projects have progressed,” says Morzaria, “from pre-resource to early resource to pre-feasibility and now to bankable feasibility.”

Indeed, one of them, Bacanora’s Sonora project in Mexico, even has an off-take agreement in place.

The key asset of European Metals, Cinovec, Morzaria estimates is “about a year behind.”

It all adds up to real progress on key strategic positions in what is one of the hottest sectors around.

Lithium has been buzzing for some time, it’s true, but there’s no sign of it abating yet. Staking rushes continue around key areas in the US like Clayton Valley, while more entrepreneurial minds are turning their attention to new extraction techniques and new sources.

And the sharp end of supply and demand one of the key players, Albemarle (NYSE:ALB) recently raised its projections for annual lithium demand growth through to 2021 by 50%, to 30,000 tonnes per year.

For companies like Cadence, with significant holdings in Bacanora, European Metals and other earlier stage projects, that can only be good news.

The question now becomes, how much value will accrue to Cadence, and how best can the company monetise this opportunity.

First off, it’s worth stating that the combined net present value of the Cinovec and the Sonora projects now stands at over US$1bn.

A study released in mid-April ascribed s US$540 mln net present value to Cinovec, while a 2016 study ascribed a U$776 net present value to Sonora.

How much of this value will trickle down to Cadence remains to be seen, in part because the current ownership structure will inevitably change at the financing stage.

But one thing’s for sure: the holdings Cadence has in European Metals and Baconora will be material to the futures of both companies.

The Bacanora holding is centred around a straightforward 17% equity stake. But Sonora actually comprises three lithium assets, and Cadence owns an additional 30% direct interest the joint venture vehicles that own two of them. That takes its total economic interest in these two projects up to around 40%, with the economic interest in the third project represented solely through the 17% Bacanora stake.

One of these projects contains approximately half of the mineral resource and according to the PFS published in March 2016 contians some 17% of the planned mining areas.

At Cinovec, the situation is somewhat simpler. Cadence owns a 21% direct equity stake in European Metals Holdings.

But all told that adds up to a significant interest in a lot of lithium, and Morzaria says Cadence is with Cinovec and Sonora for the long haul. “We’re along for that ride,” he says. “Our exit will be fundamentally when everybody else goes. Obviously we’re not the people who are going to fund the construction, but we’ll be along there and help that a long way. And we are interested in potential dividend streams.”

So the message is that although the investments in Bacanora and European Metals have done extremely well, it’s unlikely that Cadence will trade out of them.

Rather, the company will use the strength in depth provided by those assets to help support further growth.

“I had sixty-to-seventy projects across my desk last year,” says Morzaria. “And we invested in one, the Karibib project in Namibia.” Karibib is owned by Auroch Minerals (ASX:AOU), which also currently exploring for copper and zinc in the Iberian peninsula.

That deal took the total number of projects the company has backed to six, after Cinovec, Sonora, two rare earths projects, and the lithium projects of Macarthur Minerals (CVE:MMMS).

Taken together, these assets represent a solid platform for growth in a sector that now seems to have turned a corner. Watch this space..

 

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Cadence's portfolio of lithium assets provides investors with exposure to several top-tier assets

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