Cadence Minerals (AIM/NEX: KDNC) is pleased to announce its final results for the year ending
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
CHAIRMAN'S STATEMENT
I am pleased to present the Company's Annual Report and Audited Financial Statements for the year ended
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
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
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
I am pleased to present the audited results for the year ended
In reviewing the performance of Cadence during the year, it would be fair to say that our two portfolios preformed 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 Amapa 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
In addition to the progress made at Amapa, 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
In contrast to these achievements, the performance of our publicly listed portfolio tracked our largest holding,
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
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%
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
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.
As outlined in the section 'Our Business and Investment Strategy' in the Annual Report, Cadence operates an investment strategy in which we invest in private projects via a private equity model and public equity. In both investment classes, we take either an active or passive role. We have reported in these segments below.
Overall, we achieved our goals within our private investment portfolio. Amapa delivered against its operational targets, and the publication of the PFS outlined a potential asset value well above the valuation we have been investing at. For Evergreen Lithium and our Investment in the Yangibana Rare Earth deposit, our goals were to monetise these illiquid assets at a higher valuation for re-investment in our portfolio. We reached agreements that would have achieved this during the year, delivering a 335% cumulative return on our investments. However, due to regulatory delays outside our control, the crystallisation of this value was only after the year-end.
Our public portfolio followed the overall risk-off, the downward trend of the AIM basic resource index. In particular, our holding in EMH reduced in price by 49% during the year, impacting our cumulative returns and was reflected in our share price. Nonetheless, we were able to sell some of this stake to partly fund our continuing investment in Amapa; the realised return on these sales was some 174% our overall return on EMH (realised and unrealised) is some 264%.
The overall ambition of the portfolio is capital growth of the assets under management which should be reflected in Cadence's share price. We intend to fund this growth, where possible, by investing in undervalued assets, selling these investments at higher valuations, and reinvesting the proceeds.
Once we reach critical mass in terms of assets under management, this investment cycle will mitigate the need for outside capital, either in new equity or debt. Over the last three years, we have been slowly achieving this with a total of
PRIVATE INVESTMENTS, ACTIVE
Interest - 30% at
Investment
In 2019 Cadence entered into a binding investment agreement to invest in and acquire up to 27% of the Amapa iron ore mine, beneficiation plant, railway and private port owned by DEV. The agreement also gave Cadence a first right of refusal to increase its stake to 49%.
To acquire its 27% interest, Cadence invested
Operations Review
During the reporting period, the operational focus for the year at the
Pre-Feasibility Study
As part of the PFS, the
The PFS was completed during the year, with the results announced in early
The Key Highlights of the PFS are below:
Annual average production of 5.28 million dry metric tonnes per annum ('Mtpa') of Fe concentrate, consisting of 4.36 Mtpa at 65.4% Fe and 0.92 Mtpa at 62% Fe concentrate.
Post-tax Net Present Value ('NPV') of
Post-tax Internal Rate of Return of 34%, with an average annual life of mine EBITDA of
Maiden Ore Reserve of 195.8 million tonnes ('Mt') at 39.34% Fe demonstrates an 85% Mineral Resource conversion.
Free on Board ('FOB') C1 Cash Costs of
Pre-production capital cost estimate of
Opportunities: exploration target at the
Based on the positive outcome of the PFS and subsequent consultations with the key contractors, three areas of possible improvement to the
The second area of potential improvement is a change in the layout of the port at Santana by moving the railway loop further from the shore. After the year's end, a scoping study regarding this option was completed and identified a potential net capital saving to the port refurbishment costs of
The last area of potential improvement is to investigate and review the flowsheet to improve the final product quality over and above the current 65% iron ore concentrate. Once these studies are completed, work on a Definitive Feasibility Study ('DFS') can begin. The DFS is required to seek project debt and equity finance, which will be sought once the DFS is complete.
Permitting Pathway
Although DEV owns the Mining Concessions, it does need to obtain Mine Extraction and Processing Permit to begin operations, and this is done by obtaining an Operational License ('LO') from the state environment authority. Once this has been completed, DEV will apply for Mine Extraction Permit. Since the Project was acquired by its current owners in 2022, DEV has made the required regulatory filings and embarked on studies and maintenance works to comply with the
In 2022 DEV began the regularisation of the expired environmental permits. In consultation with the
This request for a waiver was on the basis that the previous LOs were granted on an operation that is substantially the same as is currently planned and remains applicable to future operations. DEV proposes that the company submits an Environmental Control Plan - 'PCA' (Plano de Controle Ambiental);and Environmental Control Report - 'RCA' (Relatorio de Controle Ambiental). DEV has begun its proposed permit pathway for the Project based on the above requirements of a PCA and RCA.
The proposed permit pathway for the Project has both legal and practical precedent and is a reasonable approach, given the Project's status and level of development.
The state owns the railway line and associated land; therefore, for the Project to utilise this, it requires both the LO and a concession agreement with the
In addition to the LO detailed above, the company's port is regulated by the Agencia Nacional de Transportes Aquaviarios ('ANTAQ'). As a result of the change of ultimate beneficiary of DEV, a change of control request was filed. This change of control was granted in
Secured Bank Settlement Iron Ore Shipments
As per the settlement agreement announced in
The main driver for the lack of shipment during the year resulted from the impact of the
With improving iron ore prices and stability returning to shipping costs, selling the 58% iron ore concentrate stockpile is economically viable. Although DEV can recommend material shipment, the secured bank creditors must approve such a shipment. Nonetheless, assuming that the secured bank creditors act under an economic desire for their debt to be repaid, we expect shipping to recommence by the beginning of Q3 2023.
Development Plan for the
The goal is to bring this project back into production. With the PFS completed, a project would typically directly proceed to DFS, funding, and construction. Cadence and Its joint venture partners have agreed that the lowest risk and currently best commercial approach to developing this project is to bring on a highly experienced mining operator or EPCM contractor as a joint venture partner, and we are working towards this goal. We currently have three interested parties reviewing the data room in this regard. However, the above strategy does not preclude the option for our joint venture company developing the project or embarking on trade sale of the project.
In our ongoing discussions with stakeholders of the
The extension of the development timeline is primary attributable to the almost two and half year delay in reaching a settlement with the secured bank creditors, this was substantially more than we had all expected. Given that a representative of the secured bank creditors indicated that they would be amenable to being paid from the cashflow after operations had started. However, it transpired that the secured bank creditors were seeking payment from the iron ore stockpiles and as such alongside our joint venture partners we negotiated a substantial reduction if the amounts payable delivering substantial long term cash savings to the project.
In the absence of a settlement, as per the investment agreement with our joint venture partners, Cadence did not want to risk capital in the project and therefore did not invest any substantial monies until this matter had been resolved. It was only at this point in
In
A further AS$ 6.63 million (
On acquiring LT and LS, Evergreen became the 100% owner of three exploration tenements.
The Bynoe Pegmatite Field is host to
In recent years, exploration activities within the Bynoe Field have been focused on the discovery of economic lithium mineralisation hosted in pegmatites, the most successful of which has been Evergreen's neighbour,
Initial field mapping on the
Evergreen aims to explore and discover an economic lithium resource for subsequent development. As with the
Since the end of the year, Evergreen, listed on the ASX, has continued to progress the development of these assets with some initial positive results from the geochemical results on both the Byone and Kenny lithium prospects.
PRIVATE INVESTMENTS, PASSIVE
Interest - 30% on
Cadence holds an interest in the
Mexalit forms part of the
A feasibility study report was published in
The feasibility study report estimates a pre-tax project net present value of
In 2021, Mexican politicians from the MORENA party tabled a draught bill to reform
We are constantly examining possible legislative changes. Our current view is that the Decree passed by the senate only impacts licenses, concessions, or contracts to be granted, not already those given, as is the case for the
PRIVATE INVESTMENTS, PASSIVE
Interest - 30% at
In
Hastings is a well-managed
Hastings flagship Yangibana project, in the Gascoyne region of
Hastings announced after the year's end that it had introduced a staged development programme to the Yangibana asset. This strategy will reduce upfront capital requirements and project execution risks and provide a faster pathway to cash flow by Q1 2025. Hastings will initially focus on constructing the Yangibana mine and beneficiation plant to produce rare earths concentrate (Stage 1), followed by developing a hydrometallurgical plant to produce mixed rare earth carbonate (Stage 2). This has resulted in the total project capital cost being estimated at
As a result of this staged development programme, Stage 1 will have a post-tax NPV11 of
PRIVATE INVESTMENTS, PASSIVE
Interest - 1% at
During the year, Cadence made a small (
The project is currently progressing its definitive feasibility study. It has a historic inferred resource of 284 million tonnes of iron ore at 31% Fe. The intent is to produce 4.5 Mtpa of 67% Fe. Our intended exit strategy is either when the asset is listed, or the owners carry out a trade sale.
PUBLIC EQUITY
The public equity investment segment includes active and passive investments in our trading portfolio. The trading portfolio consists of investments in listed mining entities that the board believes possess attractive underlying assets. The focus is to invest in mining companies that are significantly undervalued by the market and where there is substantial upside potential through exploration success and/or the development of mining projects for commercial production. Ultimately, the aim is to make capital gains in the short to medium term. Investments are considered individually based on various criteria and are typically traded on the TSX, ASX, AIM or LSE.
During the period, our public equity investments generated an unrealised loss of
16,000 shares in Macarthur Minerals for net proceeds of
Key Management Personnel are considered to be the Company Directors only, and their total within Note 2 to the financial statements.
EVENTS AFTER THE END OF THE REPORTING PERIOD
On
On
On
ULTIMATE CONTROLLING PARTY
In the opinion of the directors there is no controlling party.
FORWARD LOOKING STATEMENTS
This annual report contains 'forward-looking information', which may include but is not limited to, statements concerning the future. This annual report contains 'forward-looking information', which may include but is not limited to, statements concerning the future financial and operating performance of Cadence Minerals, the estimation of mineral resources, the realisation of mineral resource estimates, costs of production, capital and exploration expenditures, costs and timing of the development of new deposits, requirements for additional capital, governmental regulation of mining operations and exploration operations, timing and receipt of approvals, licenses, environmental risks, title disputes or claims.
Often, but not always, forward-looking statements can be identified by the use of words such as 'plans', 'expects', 'is expected', 'budget', 'scheduled', 'estimates', 'forecasts', 'intends', 'anticipates' or 'believes', or variations (including negative variations) of such words and phrases, or state that certain actions, events or results 'may', 'could', 'would', 'might' or 'will' be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Cadence and/or its subsidiaries, investment assets and/or its affiliated companies to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
Such factors include, among others, general business, economic, competitive, political and social uncertainties; the actual results of current exploration activities; conclusions of economic evaluations and studies; fluctuations in the value of
Although Cadence has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may well be other factors that cause actions, events or results to differ from those currently anticipated, estimated or intended.
Forward-looking statements contained herein are made as of the date of this annual report. Cadence disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements due to the inherent uncertainty therein. Nothing in this annual report should be construed as a profit forecast
Contact:
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Email: Info@cadenceminerals.com
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