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Obviously if it turns out to be a mining company then it might justify it a bit if they bring something to the table but I am not expecting it to be as it would have been part of the announcement.
Seems from the description of the purpose this is enough for us to get to the point of selling the project or the project being funded by the JV partner from then on.
Keeping the numbers simple, the bit that I wonder about, if you want to buy in to and fund Dev, if Dev sets the valuation at $240m why not buy out KDNC first.
I'll assume the project needs $400m construction cost (for 67% grade) 20/80 debt to equity. $80m equity investment might get you 1/3rd of the project, leaving KDNC with 22.4% and Indo with 44.3%, the project is then more valuable now being fully funded for construction. I'll assume once constructed it doubles the valuation to $480m for simplicity.
KDNC 22.4% becomes worth $107m (47p /share)
JV partner has 33.3% worth $160m a 100% gain of $80m
Why not buy out KDNC at Edison value of 27.6p/share (£50m) and take over the rights to go to 49% first at $1.1m per 1% (£13m) and then you get 49% of the project for £63m then invest the $80m (£63m) at the $240m valuation to get to 66.6% of the project and leave Indo with 33.4% at the same investment cost per %.
So £126m ($160m) investment could get you 66% of Dev worth $320m (100% gain).
Otherwise if you buy Dev in it's entirety for the same $240m you then would have to inject the $80m for a total cost of $320m for 100% with the project now worth $480m giving a 50% gain.
Happy to hear of any flaws in this logic...
This is their valuation prior to capex reduction or 67% flow sheet
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Valuation: Still does not make sense
We have reduced our valuation slightly to 27.6p/share from 29.5p/share as a result of changes in equity prices in Cadence’s public portfolio. In addition, we have removed Cadence’s stake in Hastings Technology Metals, which has now been sold. Our valuation of its stake in Amapá is unchanged at 23.9p/share as Cadence’s continued earn-in rate (up from 32.6% to 33.6%) in the project was offset by foreign exchange rate changes. Our valuation remains significantly above the market price (5.1x), with the implied valuation of Cadence’s non-public assets, at just £6.9m, well below where we see fair value.
Xótchil Gálvez, the opposition coalition candidate in Mexico's June 2 presidential elections, warned that the legal conflict with China's Ganfeng over the cancellation of nine lithium concessions in Sonora state, which also affects British firm Cadence Minerals, will harm the country.
“The company to which they had awarded the concessions is suing Mexico. That will end badly," Gálvez said during a campaign event, adding that the country's lithium deposits are in clay and require a "very complex industrial process" to be extracted.
In August, the Mexican government notified Ganfeng, owner of the Sonora lithium project – the most advanced in the country – that its concessions were being canceled because minimum investment obligations had not been met.
The Chinese company requested an administrative review of the decision, after which it claims to have been told by the economy ministry in November that the cancellation had been ratified by the general directorate of mines (DGM).
The miner announced it “will take all measures to protect the legitimate interests of the company,” including “filing international arbitration or an annulment claim.”
In early 2022, when Ganfeng bought the project's then-owner Bacanora Lithium, the project was about to begin its development phase with an initial investment of about US$800mn. At the time of the cancellation, Ganfeng was preparing to begin construction of a plant in 18 months.
In November, Cadence Mineral, through its subsidiary REM Mexico Limited (REMML), sent a request for consultations and negotiations to the Mexican government under the Bilateral Investment Treaty between the United Kingdom and Mexico. The move came after the mining concessions were revoked by the Mexican government in order to give the State the exclusivity of lithium exploitation as part of the Sonora project.
According to Cadence, the decision affected the concessions granted to Mexilit and Minera Megalit in the Sonora project, where the company has a 30% stake through its subsidiary REMML.
Although Cadence and REMML expressed the desire to resolve the dispute amicably, the bilateral treaty with the United Kingdom stipulates the possibility of international arbitration if consultations and negotiations are not successful.
According to Gálvez, the opposition candidate, the most serious aspect of the situation with lithium is that Mexico does not have the technology to process that clay and extract lithium. “It has been [two] years since the law and we have not removed a gram of lithium because it is not just digging and extracting,” she said.
In April 2022, at the behest of President Andrés Manuel López Obrador, the country's mining law was reformed to “nationalize” lithium (although it already belonged to the nation according to the Constitution). Subsequently, the state company LitioMX was created to be put in charge of the entire lithium production and commercial chain.
I'm assuming it will be one of the following: when a deal is done on Amapa with the JV partner or full buyout of Dev, maybe it will run up in anticipation. The PFS being updated with the economics of 67% shipped to the USA might make things move also. Granting of licenses is another catalyst. EMH DFS may help, or some good drill results with Evergreen.
What I would say is KDNC is far too cheap, looking around on AIM ZIOC market cap is £45.79m and they are in the Republic of Congo with (2014) $2.2bn capital expenditure to get 12mt of 66% product. They don't have a port, they don't have a railway, they don't have an existing mine, risky jurisdiction, much higher construction risk etc, yes it's a big resource and they [currently] have 100% of but it may never get to production and holders will be continually diluted, I'd take my chances here vs there any day. Our mine life can be expanded with the neighbouring deposits also.
Https://www.edisongroup.com/research/real-progress-real-value/32853/
Yes, personally I don’t think a typical PFS discount is fair because this is a proven operation so lower risk than a typical PFS.
If you mean our stake in the Amapa project via Dev Mineracao then the cash would go to Cadence and the share price would increase to reflect that cash balance (probably not fully), the policy of Cadence is to re-invest but it should depend on how the share price is, if there is a discount to NAV then buying back shares or distributing some or all of the cash to shareholders as a dividend should be a consideration.
Clearly management see the mine as worth far more than the $110m book value and I expect it to be worth more once licensing and 67% test work is proven as the NPV will be well over $1bn at that point.
My research suggested around 20-25% of NPV is a fair value for PFS stage however this being a proven refurb then 30% may be a fairer assumption, $949 x 30% is $285m, I expect 67% would move the NPV up above $1.5bn and 30% of NPV to $450m, KDNC stake being worth $150m. Perhaps the current environment means we take $100m, which gets you to about 44p per share.
If I were a shrewd PE investor wanting ownership of the project I'd be making an offer to buy out KDNC for less than 44p to get the Dev (and EMH and EG1 and Sonora) holding at a substantial discount to book (& fair) value. They could then fund it up to the 49% via Cadence at a cheaper rate given the lack of strategic shareholders to block it. I'm surprised it hasn't happened yet.