Member Info for observer842

"AIM minnow Cadence punches well above its weight in Brazil" (30th August 2019)
http://www.branduk.net/aim-minnow-cadence-punches-well-above-its-weight-in-brazil/
===[
“Opportunities such as this come along once or twice in a lifetime,” says Morzaria.

“To start a project on the scale of Amapá would require little short of $1bn capex. We (Cadence) will own 27% of a project, which when recommissioned should generate over $136m EBITDA per annum for at least 14 years, plus we will have the right and first refusal to acquire up to 49%.”

More significantly, mine net revenues after shipping is forecast to be approximately $265m per annum, with EBITDA of approx $136m per annum based on a conservative iron ore price of $61 per tonne. Currently iron ore prices are closer to $90 per tonne.
]===

The significance of those statements should not be underestimated - these are conservative estimates. In fact very conservative on today's spot. The share price today seems to believe Amapa will not happen, valuing it from what I can see solely on the $2.5m we have invested so far (which we get back if a deal is not concluded: no interest @Frankie, it's in an escrow account which don't normally pay interest). If however the project does progress nicely we are talking up to 49% of a project which will likely be valued in the billions of dollars if exchange rates and iron ore prices and premiums for what we intend to sell stay reasonably favourable. With revenue flow to the project starting soon after we take 20% ownership of the project, i.e. potentially as soon as this month.

Of course it's a gamble, but possibly one with returns that come along once or twice in a lifetime, to coin a phrase :-)

Ob.

LoL! @tomcat. Use a browser that auto translates, e.g. Google Chrome.

@tomcat - if you want to research the progress of the various court cases related to us in the Brazilian courts, there are quite a few links I've shared previously. This one brings them all together and indicates there is clearly recent progress - just not as fast as we had hoped or anticipated!

https://www.jusbrasil.com.br/busca?q=%22dev+mineracao%22&o=data

Though the format can take a little while to get used to! :-)

I don't think so @tomcat. The reason is stated at the top of the RNS: "change of attribution of the nature of the holding (USD convertible instrument translated to GBP)". Perhaps not as crystal clear as it could be...

Thanks for the clarification @tomcat. I prefer your calculation to mine! :-)

LoL x 2 to you @Frankie.

I think my calculator needs a servicing!

0.08% / 7.93% * 100 = 1.01%

LoL!

Or does your % relate to the deduced percentage change in GBP:USD

0.08% / 7.93% * 100 = 1.09%

If so, the answer is yes, apparently so.

I think you need to get your calculator looked into @tomcat! LoL:

8.01% - 7.93% = 0.08%

Ob.

meaning they had to issue a holding notice, because they crossed the 8% threshold.

The USD has strengthened slightly against GBP which means if the CLN's were converted they'd now have more shares, meaning they had to issue a holding notice. We may see another holding notice if the USD weakens.

Talking of exchange rates... BRL to USD is now 4.13 :-)

Anyone new looking in here I encourage you to research the Amapa project. The BoD have stated the potential of the project and through research on here the "why" is becoming apparent. In summary:

1. A change in BRL to USD exchange rates (today ~4.1, 2012/13 ~2.0) has:
1.1 halved the debt associated with the project which appeared to be in BRL.
1.2 should significantly reduce operating costs (which is typically local currency) when expressed in USD.

2. Iron Ore prices have recovered.
2.1 In particular premiums for what we intend to sell are increasing
Custeel Spot (2020-01-09):
Seaborne index 62% Fe fines = $93.55/t
Seaborne index 65% Fe fines = $105.52/t
Seaborne index 65% Fe pellets premium= $26.29/t

3. Dry Baltic Index low and trend is downwards.
3.1 Capesize in particular - circa $9-10k per day for 170-180kt.

Any others I've forgotten?

Here are links to all Amapa announcements:

"Heads of Terms to Acquire Interest in former Anglo American Iron Ore Mine, Amapá, NE Brazil" (21 May 2019)
http://irservices.netbuilder.com/ir/cadence/newsArticle.php?ST=REM&id=2790390

"Binding Investment to Acquire Interest in former Anglo American Iron Ore Mine, Amapá, NE Brazil" (07 June 2019)
http://irservices.netbuilder.com/ir/cadence/newsArticle.php?ST=REM&id=2806071

"Approval of Judicial Restructuring Plan Paves the way for the Restart of the Amapá Iron Ore Project." (30 August 2019)
http://irservices.netbuilder.com/ir/cadence/newsArticle.php?ST=REM&id=2887382

"Reinstatement of Critical Railway Concessions at the Amapá Iron Ore Project, Brazil." (09 December 2019)
http://irservices.netbuilder.com/ir/cadence/newsArticle.php?ST=REM&id=2987360

The June corporate presentation is also informative:

https://www.cadenceminerals.com/wp-content/uploads/2019/07/Corporate-Presentation-KDNC-June-PPT-PUBLIC.pdf

There are also media clips from @Kiran at the bottom right of the KDNC web page: https://www.cadenceminerals.com/

Good luck! :-)

Ob.

@tomcat. Worth you taking another read of:

"Approval and Homologation of the Judicial Reorganization Plan of Zamin Amapá Mineração S.A. (Dev Mineração S.A. – under Judicial Reorganization)" ( 5 September, 2019)
http://dsmlaw.com.br/en/2019/09/05/approval-and-homologation-of-the-judicial-reorganization-plan-of-zamin-amapa-mineracao-s-a-dev-mineracao-s-a-under-judicial-reorganization/
===[
On August 29th, 2019, the Judicial Reorganization Plan of Zamin Amapá Mineração S.A. was homologated, enabling the indebtedness, which was already representing over 1 billionais, to be restructured.
...
After a long meeting, which lasted more than 9 hours, more than 90% of the creditors approved the plan.
]===

My understanding is that circa 1 billion BRL was worth around $500m at the time, and now is worth around $250m due to exchange rate shifts, and they've agreed to take a haircut on this to NPV10 $106m. This represents 90% of the creditors. Presumably we are negotiating with the remaining 10% of creditors. Whether that is by number of creditors or by volume of credit is anybodies guess... hopefully by volume. :-)

Ob.

It's a huge operation @Barksy! You'll be pleased to hear that 70% of the port has been rebuilt: "In March 2013, before the acquisition was completed the port facility suffered a ground failure which interrupted production and mining subsequently ceased in March 2014. Anglo American completed the sale in November 2013[7]. During 2014, reconstruction work commenced at the port with some iron ore concentrate product being shipped during Dec 2013 and into 2014, via an interim barging solution The Amapá Project borrowed US$135 million senior debt from a banking group led by Intesa São Paulo and rebuilt 70% of the port."

LoL @tomcat. There will be debt on the balance sheets - the debt we have negotiated to date (NPV10 $106m), and that we are in the process of negotiating which will allow the deal to close taking us to 20%. In terms of recognised asset value, I presume so! But by what measure? Replacement costs?

You've lost me @tomcat. What's the reason you think it's appropriate to multiply $50m by 14.28?

To reiterate. When we pay $3.5m to take our holding from 20% (which we have yet to attain) to 27%, this transaction will place a paper value on the Amapa project of $50m. This is simply $3.5m divided by 0.07 (7%).

No doubt you've spotted a connection I've yet to see. LoL! :-)

The $50m I mentioned earlier is the paper valuation of the Amapa Project when we own 27% of it. The market will likely value it much higher than that IMHO, but if it were to value it at the paper valuation then it'll mean that our 27% of the $50m project valuation is worth around £10m to KDNC.

@Ivybush. The Amapa deal should have concluded in December. I would have thought it is now imminent. Have you been following the links I supplied to Brazilian Justice system? Point being raising off the back of good news is much more preferable than raising at today's suppressed share price IMHO. Even if it does mean we have to sell some of our assets on market.

I suppose to answer @kevman directly. You've got those holding back waiting for a placing (dilution), and those holding back who would normally buy in the hope they spot news first. That coupled with lack of publicity and lack of belief from (some!) long term holders is meaning that the sells are outweighing any buys. If I didn't have any shares here I'd be piling in, but I suspect we aren't getting enough publicity at the moment, or those who are looking in don't quite understand the magnitude of Amapa, for new blood to be interested until the rise starts - and *then* they look in. LoL.

But the past two days of trading have been interesting. I don't remember the last time I saw only 1 share traded in an auction on Thursday @6.5p followed by a significant number of sells at the price and into Friday with very little counteracting buys. A couple of explanations spring to mind, perhaps there is a large order being filled around 6.75-7p? And one for the AIM conspiracists - the MM's have wind of good news and want your shares to sell on the rise. :-)

Ob.

@ivybush: "Looks to me that rather than dispose of more assets at current depressed prices a capital raise is on the cards". What gives you that impression? It looks to me from the recent website update that we are prepared to sell down assets at depressed prices to meet our obligations - and I agree with this strategy if they believe Amapa news is imminent (and good!) - it's that project that is now the company maker IMHO and I'm happy to see the others sold down if we need to in preference to dilution to my holding. Ideally we hold onto our JV's though until they can be sold at a decent price.

You are right that although the plan isn't for us to see the cash flow from sale of the iron ore stock piles, it's the 20% ownership of the project and what this signifies for the future of KDNC that could be the game changer making an equity raise here much more palatable, and possibly not even necessary if the CLN's are converted should the share price react strongly.

But it's possible the Amapa project may decide it's in the interests of the project that some of the revenue from the sale of the iron ore sales is flowed back to the project owners - especially if this enables the project owners to more easily raise their share of the equity element of the $168.3m CapEx. I very much doubt it - but it's perhaps a possibility, it'll depend on the exact wording of the agreement. Presumably if only one of the partners wanted to do this their share of the project would decrease.

Personally I think there could be many waiting in the shadows to pile in on news of 20% ownership. Even I've been holding back the past few weeks, hoping I'll see the news before it's RNS'd - and I can pile in with much reduced risk than what I've taken to over septuple my holding since the end of August. And therefore the buys are unable to balance the sells, and down we drip. It's an AIM thing - drip, drip, drip down, until: boom! :-)

For the avoidance of doubt I believe there is still considerable risk. In fact even when (if!) we get to 20% holding it's still there, just significantly reduced.

Ob.

Great find @tomcat! I presume you are now looking for how much additional CapEx has been spent on the project since the original $0.99B up until today? Probably of the order a couple of $100m, perhaps $0.5B from what I've read - no links, from memory.

What's interesting from that presentation is the split of debt to equity: $742m:$248m = 3:1.

Once we own 27%, the company will be valued (on paper at least) at $50m (since we would have paid $3.5m for 7%)

If the debt to equity split is similar then we might expect of the $100m (net CapEx after sales of the iron ore stock piles at the port) to be raised to bring back the over $1B CapEx project into production, $25m to be equity, $75m to be debt. This will be raised by the project owners ($6.75m to KDNC to maintain its 27%) or elsewhere. If we don't contribute, our 27% will be diluted to:

27% * $50m / $75m = 18.0%.

But this is where our option to go to 49% comes into play: "Should Indo Sino seek further investors or an investment in PBA the agreement also provides Cadence with a first right of refusal to increase its stake to 49% in PBA."

And oh look: If we were to contribute all of the $25m equity towards the CapEx, our final percentage would become:

18% + $25m / $75m = 51.3%

i.e. if we (KDNC) are able to contribute $25m at that point we are able to take our 27% of the project to 49%. Of course our partners might very well decide to contribute their share of the $25m rather than look elsewhere, in which case we'll hold on to 27%, assuming we contribute $6.75m.

I'm not sure how much longer I can hold my breath for! ;-)

Ob.