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If Amapa comes good then those buying in at the current share price should see a considerable multi-bagging IMHO.

Good posts @Frankie. I'm not sure what your question is @tomcat. My understanding is that iron ore prices sank considerably, and at the time the BRL to USD was low (2:1) meaning project economics were not favourable = bankruptcy. Have you been through my court case links? There appeared to be a recent challenge to the judgement at the end of August which was recently dismissed. :-)

A reminder of just how transformational Amapa could be for KDNC:

"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
===[
Cadence Non-Executive Chairman Andrew Suckling commented; "To echo my previous comments, in my time working with commodity projects around the world, I have rarely if ever seen a lapsed mining project with this sort of potential. The reinstatement of the life of mine railway concession is the first key step toward rehabilitation of the Amapá Project, and I speak for our board and investors when I say that we expect this to be a Company changing event. Cadence and Indo Sino, along with the Government of Amapá have worked tirelessly to conclude this key step, and we are grateful for all they have achieved."

"In its previous life, Amapá's output contributed significantly to the regional economy. It is important to consider the employment opportunities and funding for infrastructure, education and health that a rehabilitated mine will bring to this part of Brazil."

Cadence CEO Kiran Morzaria commented; "Since the approval of the JRP in August, we have worked with Indo Sino and the Government of Amapá to secure this first key step to bring Amapá back into production. Now we have secured the Railway concessions, once agreement has been reached with the secured bank creditors we can commence operations at the mine, railway and port. I look forward to providing our board and investors with further progress updates."
]===

If Amapa comes good then those buying in at the current share price should be on for a considerably multibagging IMHO.

Ob.

Looks to me like it was all of Auroch, any remaining of BCN, 1% of EMH and possibly some of MMS down the back of the sofa, suggestive that the BoD are anticipating Amapa dealings to be concluded one way or another "soon". If they are concluded favourably we then own 20% of a project with quite staggering potential and our share price should (could! this is AIM after all) react quite favourably to this news making any fund raise to help pay off the CLN's more palatable, although I suspect the CLN's might get converted if we fly past their conversion price. And if we walk away from the project with 0% our $2.5m is returned and an imminent fund raise isn't required.

I trust everyone has completed their Amapa research by now in preparation for potential good news to help guide decisions. Look back through my recent posts. Here are some pointers: Shipping costs (baltic dry index) low and lowering; exchange rates very favourable and becoming more so; iron ore spot, futures and pellet premiums favourable and rising. These and other factors lead to quite staggering project economics IMHO.

Ob.

Thanks for the $866m (70%) find @tomcat! No wonder I couldn't find it by searching. LoL.

As for how much was paid for Amapa? Presumably it was more than the $1,667m (70%) they impaired it by in the 2009 reports? In fact, without looking too hard at this (I really should hold off more Amapa research until we own 20%!) I would have thought that at a reasonable first guess of how much they paid in total the $1,667m can simply be added to the remaining $866m of fair value stated in later years = $2.5B (70%) which would have valued Amapa at $3.6B on a 100% basis. Wow. From what I've read it's likely that their willingness to pay this would have been based on the potential for expansion - which they gave up on for various reasons, but according to various sources is on the cards again should all go to plan - presumably if USD:BRL and Iron ore prices stay favourable, in addition to many secondary aspects.

Fingers crossed all for good news in the coming weeks! Perhaps tomorrow even. :-)

Ob.

Continuing to explore the conclusion that favourable exchange rates give the potential for Amapa to be significantly more profitable than when Anglo part owned it, despite iron ore prices being on average less than 2011/12.

I've taken a closer look at Anglo's reports. This from 2012 is quite revealing:

https://www.angloamerican.com/~/media/Files/A/Anglo-American-Group/PLC/investors/annual-reporting/2013/annual-report2012.pdf
===[
[Page 43]
The Group’s results are affected by
currency fluctuations in the countries
where the operations are based. The
strengthening of the US dollar against
the South African rand and the Brazilian
real resulted in a $945 million positive
exchange variance in underlying
operating profit compared to 2011.
...
[Page 86]
Amapa:
2011: underlying operating profit: $120m
2012: underlying operating profit: $54m
...
[Page 151]
Revenue and underlying operating profit by origin
Segment revenue and underlying operating profit by origin are provided for information:

Brazil:
2011:
Revenue: $1,404m
Underlying operating profit: $152m
2012:
Revenue: $1,274m
Underlying operating profit: $200m
...
[Page 172]
Foreign currency sensitivities

+10% US dollar to Brazilian real
2011:
Income statement: $402m
Equity: $405m
2012:
Income statement: $190m
Equity: $190m

–10% US dollar to Brazilian real
2011:
Income statement: ($279m)
Equity: ($282m)
2012:
Income statement: ($194m)
Equity: ($194m)
]===

Someone else might be better able to tease out information from the above and elsewhere in the report than me, but the way I'm seeing it according to their figures, had the Brazilian Real being BRL 4 : USD 1 as it is today, rather than BRL 2 : USD 1 at the time (less so in 2011 - more like 1.7:1), then their income statement would have improved by $4B in 2011 and $1.9B in 2012. There are probably lots of caveats to this, and I could quite easily be misunderstanding some critical aspects, so DYOR :-)

However it does feel like there should be enough information in the report and elsewhere to figure out how much of that additional income would have been attributable to Amapa had the exchange rates being as they are today.

"Production in 2011 totalled 4.8 Mt, a 20% increase over the previous year". Stated average ore price in their 2011 report: "$158/t". This likely doesn't include premiums for what is actually sold, but going with it would give a revenue stream from Amapa of: $158/t * 4.8Mt = $760m - about half the total revenues stated for Brazil above ($1,404m).

I think I'll stop there for now. The conclusion being I'm quite certain I'm on to something, and that I really should hold my breath until we get to at least 20% so I'm not wasting my time with all this so called research. LoL. But this is exciting stuff! :-)

Has anyone else spotted this? WHI?

Ob.

I should clarify that the doubling of OpEx (as measured in USD) in response to doubling of the exchange rate (from 1USD : 4BRL to 1USD : 2BRL) was an extreme scenario. I don't know how much it would increase by given what we know, but it won't be double.

In fact I think the changing exchange rate sufficiently explains why this is such a good project today. I hadn't appreciated how sensitive it might be to the exchange rate until now.

"Cadence Minerals PLC - Approval of Judicial Restructuring Plan - Amapa" (30th Aug 2019)
https://www.lse.co.uk/rns/KDNC/cadence-minerals-plc-approval-of-judicial-restructuring-plan-amapa-omqcte36gtcervm.html
===[
It is estimated that at steady-state production of 5.3 Mt of iron ore and utilising a 62% Fe price of US$61 / tonne (27/08/2019 price Fe 62% - US$90 / tonne) Amapá will have an average :

US$266 million per annum of net revenue after shipping,
US$90 million per annum in mine, processing and transport costs
US$48 million per annum in environmental, sales and G&A expenses
EBITDA of US$136 million per annum.
]===

If the exchange rate moved back to 2, then the $266m should stay approximately the same (all things being equal) but it might be reasonable to conclude that the $90m doubled to $180m and the $48m to $96m pretty much wiping out the EBITDA of $136m.

Finally. It all makes sense. Probably. :-)

@Frankie - this is a good revelation, as it explains how the project can be so profitable under such conservative scenarios, especially when compared to Anglo's figures. But it does mean we need to keep an eye on that exchange rate as well as the iron ore prices. One more thing to watch. Sigh. LoL!

Perhaps I should wait until we get to 20% before doing any more research.

Ob.

@Frankie. Prices are as stated. 2nd answer: it was a cut and paste job from the report, which was in a column.

There are now 4 BRL's to the USD, in 2012 it was 2 which would account for some of the reduction in operating costs (in USD).

It's possible shipping costs might have been higher too around then, but I suspect the exchange rate is probably the largest factor from the graphs I can spot.

No doubt there are other factors. Fuel?

"Annual Report 2012"
https://www.angloamerican.com/~/media/Files/A/Anglo-American-Group/PLC/investors/annual-reporting/2013/annual-report2012.pdf
===[
AMAPÁ
Amapá generated an underlying
operating profit of $54 million,
a decrease of $66 million on the
prior year.
Production increased significantly,
in line with planned ramp up and
also due to higher mass recovery in
the beneficiation plant as a result of
the plant’s improved stability. The
operation is now at design production
capacity. Higher sales were also
achieved following fewer delays
associated with transportable moisture
limits. Transhipment at Trinidad and
Tobago from smaller capacity
Handymax to the larger capacity
Capesize vessels for onward shipment
to the Middle and Far East was
successfully implemented in the
second half of 2012.
The favourable impact of improved
production and higher sales, however,
was more than offset by a sharp
decrease in prices during 2012, though
tight cost control and improved
operating efficiencies, partly
compensated their effect. Underlying
operating profit also benefited from
the reversal of penalty provisions,
which were in place at the end of 2011,
as a result of contract renegotiations.
...
Anglo American has transformed the
operational performance of Amapá
since acquisition in 2008, increasing
annual production from 1.2 Mt in 2008
to 6.1 Mt in 2012.
...
Amapá 2012 2011
Sinter feed tonnes 2,100,000 1,401,000
Pellet feed tonnes 2,223,200 1,948,300
Spiral concentrates tonnes 1,749,100 1,472,200
6,072,300 4,821,500
...
Considerable price volatility marked
2012, especially during the third
quarter when prices fell by as much as
36%, as Chinese steel mills depleted
stockpiles and reduced raw material
inventory levels to as little as 17 days’
worth of production requirements.
Iron ore prices reached a high of
$151/t (62% Fe CFR China) in April
2012, but fell to a low of $89/t in early
September, before stabilising at
around $130/t towards the end of the
year. The market recovered at the
end of 2012, with steel mills returning
to the market, which was reflected in
a marked increase in index iron ore
prices. Overall, index prices averaged
$130/t (CFR 62% Fe Platts) in 2012,
23% lower than the $169/t average
achieved in 2011.
]===

Operating profit of $54m (presumably 100%: $77m) in 2012 off 6.1Mt @ average $130/t. Why is this so low? And more importantly how are we forecasting "an average EBITDA of US$136 million per annum" "At full production and using US$61 per tonne of 62% Fe Amapá"

Something doesn't stack up. Any ideas? I know operating profit is not exactly the same as EBITDA, but it's close enough in this context isn't it? What expense might Anglo be deducting to only reach $77m when we are estimating nearly double that off half of the sale price? I know we are selling more of the premium stuff, but still.

@Kiran - check your maths! LoL?

Ob

If I applied the thought experiment: "Your broker accidentally sold all of your stock and you have the cash from the sale in your bank. They admit their mistake and will buy back it all back at no cost to you so you have the same number of shares. What do you do?" I would buy it all back as fast as possible. But that's me. Even though I might talk about averages on occasion, I typically think in the here and now. If I thought there was another share that was likely to return better risk to rewards to me on a time frame faster than KDNC might, then I would be selling some KDNC and buying into that company, regardless of averages. Not all mind you.

Questions you might want to ask. Are you convinced by the prospects of Amapa? Do you think we might get EMH news imminently? (in which case why not invest in EMH rather than KDNC?). Do you think we might get BCN/Sonora news imminently? (in which case why not invest in BCN rather than KDNC). What about Yangibana? MMS?

The answers to those questions leads me to think KDNC is a good bet from this point, despite salaries to pay and loans to repay indicating a capital raise is likely on the cards - just hopefully at multiples of today's share price. :-)

By the way, my answer to one of the questions: I suspect if the target mining rate of Sonora increases beyond 35ktpa it'll be KDNC's share price that multiplies faster than BCN's.

Ob.

There is more on revenue flow and valuations in our original announcement at:

" Heads of Terms to Acquire Interest in former Anglo American Iron Ore Mine, Amapá, NE Brazil" (21 May 2019)
https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/KDNC/14082106.html
===[
Production steadily increased to 4.8 Mt and 6.1 Mt of iron ore concentrate product in 2011 and 2012 respectively. During this period Anglo American report operating profits from their 70% ownership in the Amapá Project of US$120 million (100% US$171 million) and US$54 million (100% US$ 77 million)[5]

Prior to its sale in 2012 Anglo American valued it's 70% stake in Amapá Project at US$866 million (100% 1.2 billion) it impaired the asset in its 2012 Annual Accounts to US$ 462 million (100% US$ 660 million[6]
]===

I'm currently hunting the origin of that US$866 million (100% 1.2 billion) - there are links at the bottom of the page, but I can't find reference to $866 in them.

I suspect the $1.5B Reuters mentioned was mentioned to a journalist. Although if you squint at the annual reports long enough various figures can be made to approach it.

The reports can be found here:

https://www.angloamerican.com/investors/annual-reporting/reports-library

Although there is something mildly interesting with the figures but I'd rather concentrate on Amapa research at the moment.

@Frankie. The conversation related to the RNS is concluded. @tomcat said: thank funk for that sofa, relating to my post on "28 Dec 2019 13:18" :-)

I haven't found where the $1.5B comes from @Frankie. I was revisiting this:

"Cadence Minerals PLC - Approval of Judicial Restructuring Plan - Amapa" (30th Aug 2019)
https://www.lse.co.uk/rns/KDNC/cadence-minerals-plc-approval-of-judicial-restructuring-plan-amapa-omqcte36gtcervm.html
===[
Before its sale in 2012 Anglo American valued its 70% stake at US $462m in its 2012 Annual Report (100% US $600m)
]===

to see how it is was calculated. I now understand how it is calculated. It's a held for sale valuation based on current (at the time) fair value. This is quite different to what we'd call a net present valuation based on estimates of future revenue flows, and therefore I was wondering how they arrived at their valuation of $1.5B the previous year. As far as I can understand the drop to $600m has nothing to do with current or projected iron ore prices (at the time), it's simply a sum of total current and non-current assets.

I'm currently left concluding that as with other aspects surrounding Amapa, again it looks like the BoD have been quite conservative in quoting the $600m value when they could quite as easily have quoted the $1.5B? Perhaps the latter isn't public? We shall see what google has to say about that :-)

Ob

Indeed @mrcautious! Fingers crossed for fourth (or is it fifth now!?) time successful for the new plan of us owning up to 49% of a project with near term revenue flowing into it - potentially this month for 20% and revenue flowing from iron ore sales at the port. :-)

Has anyone found the source of the 2011 (100%) $1.5B internal valuation of Amapa by Anglo American quoted below?

"Anglo American sells Brazilian Amapa mine to Zamin" (JANUARY 4, 2013)
https://uk.reuters.com/article/uk-angloamerican-amapa/anglo-american-sells-brazilian-amapa-mine-to-zamin-idUKBRE90309O20130104
===[
An internal valuation by Anglo in 2011 put Amapa’s value at $1.5 billion
]===

Yes, as planned: "Cadence will initially only pay the interest on the Convertible Loan Note until the 1 January 2020, after which 50% of the outstanding balance will be paid back over 8 months (1 August 2020). The outstanding 50% will be paid back on 1 September 2020.".

Amapa! Amapa! Amapa! I suggest taking a very close look. We may get news when the courts reconvene next week.

I feel for you @MLQ. An interview I saw many years ago by a respected investor (I can't remember who) has stuck with me every time I question my sanity in averaging down. The crux of their (apparently) successful investment strategy was either to sell out as a share fell despite the prospects improving, never hold as it falls: either sell or double, triple, or in my case over septuple down as the prospects improved as Amapa progressed. 44p would do me VERY nicely from here, never mind 165p which is a 25 bagger for those buying in now.

Mind you I don't always follow this approach, and sometimes when I do, I average down too early, but that's AIM for you. Who ever manages to catch the falling knife at the bottom every time? - I've caught it a few times mind you! ;-)

If it's any help, I believe if Amapa comes good, we get a fair deal for Yangibana, Sonora increases production targets beyond 35ktpa, and we are able to help fund EMH's share to production then we could be looking multiple pounds - over 5p in old money :-)

Ob