REG - Cadence Minerals PLC - Interim Results for six months ended 30 June 2022
28/09/2022 07:00
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RNS Number : 9148A Cadence Minerals PLC 28 September 2022
28 September 2022
Cadence Minerals plc
Interim Results for the six months ended 30 June 2022
Cadence Minerals plc (AIM/AQX: KDNC) is pleased to announce its interim
results for the six months ended 30 June 2022.
OVERVIEW
The Company's goals for the six months ended 30 June 2022 were first to vest
our 27% in the Amapa Iron Ore Project ("Amapa Project"), secondly to progress
the development of Amapa and advance the Pre-Feasibility Study ("PFS") and
lastly to create capital growth in our passive private investments via a sale
either in cash or a swap into liquid equity. I am pleased to report the
Company was successful in all of the above goals.
The first goal was met in the first quarter of this year. After successfully
reaching an agreement to vest its 20% at the end of December 2021, Cadence
increased its stake in the Amapa Project to 27% in March 2022; the
consideration for the additional 7% was US$3.5 million. The funding was used
to achieve our second goal, which was to advance the PFS. Although PFS work
commenced in 2021, the March investment fully funded the remainder of the PFS
study. The current expectation is that in Q4, we will publish an updated
Mineral Resource Estimate ("MRE), followed by an Ore Reserve Estimate ("ORE")
and, finally, the publication of the PFS.
The final goal was achieved via two asset sales; firstly, our 31.5% interests
in Lithium Technology Pty Ltd and Lithium Supplies Pty Ltd ("LT and LS") were
sold to Evergreen Lithium and secondly, our 30% interest in licenses within
the Yangibana Rare Earth Project ("Yangibana Project") were sold to
owner/operator Hastings Technology Metals. In both cases, Cadence agreed to
vend these assets for equity in companies that are either listed or are
expected to be listed.
Cadence has invested approximately £1.7 million in these assets, and our sale
price into the equity of the two public companies was the equivalent of £5.5
million, representing a 321% cumulative return on our investments. The
Yangibana sale is not reflected in the interim financial statements as it has
not yet been completed. However, we expect that both the Yangibana Project
transactions and the IPO of Evergreen Lithium will complete this year,
hopefully further increasing our returns.
In contrast to these accomplishments, the macroeconomic environment has been
generally negative. This has been dominated by the war in Ukraine and the
devastating humanitarian consequences that have followed. The European war is
the most serious crisis in decades, and food security and energy needs have
emerged as significant concerns. We now live in a world of increased macro
volatility, with central banks battling a problematic trade-off between
soaring inflation and managing a fragile economic recovery in the aftermath of
the COVID-19 pandemic.
Despite this challenging backdrop, the lithium and rare earth sectors have
remained positive, with pricing in both products remaining robust. This demand
continues to be driven by the electrification of our transport systems and the
continued undersupply of feedstock. Despite some commentators suggesting
otherwise, the oversupply of lithium is not imminent; we still see a market
deficit going forward for the same structural reasons that we saw in 2018 when
some of the same market commentators forecasted an oversupply of feedstock.
Within the iron ore market, we have seen the impacts of a global slowdown,
with the 62% Fe Platts index dropping from US$125 per dry metric tonne ("dmt")
to circa US$ 100 / dmt. Both short and longer-term prospects for iron ore are
driven by China, given the nation is the world's biggest steel producer and
currently buys about 70% of global seaborne iron ore. As policy support gains
traction, we expect China to emerge as a source of stability for iron ore
demand. This is contingent on Beijing implementing successful and timely
stimulus measures, limited COVID lockdowns, and a shallow global slowdown that
limits monetary tightening.
The overall negative macro environment weighed down on our public portfolio,
with the AIM Basic Resources Index down some 30% over the period and European
Metals Holdings ("EMH"), our largest public equity position, decreasing in
value by some 47% during the reporting period.
We are cautiously optimistic despite the macroeconomic headwinds. Recent
indications point to a recovery in China's growth momentum in the second half
of the year, with cities reopening and government policy stimulus helping. In
mined commodity markets, supply and demand are generally tight, and prices
appear well supported. The transition to net zero carbon emissions will
continue to open up investment opportunities in companies that serve the
associated supply chains.
As outlined in our annual report and accounts, Cadence operates an investment
strategy that includes investments in private projects via a private equity
model and investments in public equity. In both investment classes, we take
either an active or passive role. We have reported on each category below.
PRIVATE INVESTMENTS, ACTIVE
The Amapa Iron Ore Project, Brazil
Interest - 27% at 30/06/2022
The Amapa Project is a large-scale iron open pit ore mine with associated
rail, port and beneficiation facilities that commenced operations in December
2007. Production increased to 4.8 Mt and 6.1 Mt of iron ore concentrate
product in 2011 and 2012, respectively. Before its sale in 2012, Anglo
American valued its 70% stake in the Amapa Project at US$462m (100% US $660m).
In 2019 Cadence entered into a binding investment agreement to invest in and
acquire up to 27% in the Amapa iron ore mine, beneficiation plant, railway and
private port owned by DEV ("The Agreement"). The Agreement also gave Cadence a
first right of refusal to increase its stake to 49%. To acquire its 27%
interest, Cadence invested US$6 million over two stages in a joint venture
company ("JV"). The first stage is for 20% of the JV, the consideration for
which was US$2.5 million. The second stage was completed in March 2022 for a
further 7% of the JV for a consideration of US$3.5 million.
During the reporting period, the two key operational priorities were:
1. Progressing the permitting pathway, including the regularisation of the
mining concessions, tailing storage facilities and the environmental permits.
2. Advancing the PFS, which commenced in 2021, and progressed in earnest
once the second stage funding from Cadence vested.
At the time of writing, the PFS is progressing well with all the mineral
processing and logistic studies completed and costed. The updated MRE and ORE
are both due for completion in October 2022.
The PFS contemplates refurbishing and rehabilitating the existing port, rail
and plant with modifications being made to the beneficiation plant to achieve
a larger portion of 65% iron concentrate (4.9 Mt). The PFS is based on
producing 5.3 Mt of iron ore concentrate per annum. The PFS, once complete,
will outline more fully the development timelines and capital required to
achieve the stated project aims. After the publication of an economic PFS, we
expect DEV will seek to commission a Definitive Study ("DFS"). The DFS is
required to seek project debt and equity finance, which will be sought once
the DFS is complete.
PRIVATE INVESTMENTS, PASSIVE
Evergreen Lithium Limited
Interest - 13.16% at 30/06/2022
During the reporting period, Cadence and the shareholders of LT and LS
completed the sale of 100% of LT and LS to Evergreen PTY Ltd ("Evergreen").
Evergreen is an unlisted public company in Australia that has been
incorporated explicitly to acquire lithium assets. The acquisition of LT and
LS is its first acquisition. Evergreen raised AS$ 6 million to pursue this
strategy and now plans to list on the Australian Stock Exchange.
The consideration for LT and LS is up to A$ 21.05 million (£12.79 million).
Cadence had 31.5% of LT and LS and will receive up to A$ 6.63 million (£4.02
million). The initial consideration that has been paid is AS$3.16 million
(£1.92 million) in Evergreen shares, or 15,830,136 shares at A$0.20 per
share, representing 13.16% of Evergreen.
Subject to performance milestones being achieved (found here
(http://irservices.netbuilder.com/ir/cadence/newsArticle.php?ST=REM&id=311428221695889680)
), an additional AS$3.47 million (£2.10 million) will be paid in Evergreen
shares. If the performance targets are met, the total consideration for
Cadence's equity stake in LT and LS would be AS$6.63 million (£3.80 million).
As a result of the acquisition, Evergreen, through its subsidiaries, are the
holder of two exploration licenses in the Northern Territory, one granted and
one in the application phase. LT and LS further hold seven exploration license
applications in Argentina.
All of the licenses and applications target potential hard rock lithium
deposits. The most significant of these is the Litchfield lithium prospect,
which is contiguous to Core Lithium's (ASX: CXO) strategic Finniss Lithium
Project (JORC compliant ore reserves: 7.4Mt @ 1.3% Li2O). Evergreen has
committed to spending at least A$4 million on the exploration of Litchfield
during the three years post the completion of the sale.
Cadence's total investment in the LT & LS was £0.81 million. The Company
has received £1.92 million as an initial consideration and, subject to
project milestones, will receive a further £2.1 million. This represents a
159% return on the initial consideration and a 395% return on the cumulative
consideration.
Yangibana Project, Australia
Interest - 30% at 30/06/2022
The Yangibana Project is a significant Australian Rare Earths Project,
containing substantial Neodymium and Praseodymium resources. The Yangibana
Project currently covers approximately 650 square kilometres containing some 9
Mining Leases, 2 Prospecting Licenses and 19 Exploration Licenses. Cadence
holds a 30% interest in 3 Mining Leases and 6 Exploration licenses. These
tenements contain 0.70 million tonnes of Ore Reserves, which can increase the
expected mine life of the Yangibana Project by approximately one year to a
total of 16 years.
In June 2022, Cadence entered into a binding agreement to sell its working
interest in the leases to Hastings Technology Metals (ASX: HAS) ("Hastings"),
the current owner and operator of the Yangibana Project.
The interests will be sold for A$9.0 million (£5.45 million) to be settled by
the issue of fully paid ordinary shares in Hastings at a price to be
determined based on 30 days VWAP before completion, which is set at six months
from the date of signing of this agreement.
Hastings has commenced site construction and is planning to begin
commissioning the beneficiation plant in late 2023, delivering maiden
production to key customers in 2024.
In February of this year, Hastings published a revised NPV calculation, which
increased the NPV by 84% to AS$ 1 billion. Hastings's current market
capitalisation is circa A$ 415 million. Also, in February, the Australian
Government's Northern Australia Infrastructure Facility (NAIF) approved a $140
million loan facility to Hastings and Yangibana, making it the first
Australian rare earth project to receive NAIF funding.
Cadence's total investment in the Leases was £0.90 million. Subject to the
completion of the sale, we will receive approximately £5.45 million in
Hasting shares, representing a 502% return on our investment.
Sonora Lithium Project, Mexico
Interest - 30% at 30/06/2022
Cadence holds an interest in the Sonora Lithium Project via a 30% stake in the
joint venture interests in each of Mexalit S.A. de CV ("Mexalit") and Megalit
S.A. de CV ("Megalit").
Mexalit forms part of the Sonora Lithium Project. The Sonora Lithium Project
consists of ten contiguous concessions covering 97,389 hectares. Two of the
concessions (La Ventana, La Ventana 1) are owned, as of the date, 100% by
subsidiaries of Gangfeng Lithium Co., Ltd ("Gangfeng"). El Sauz, El Sauz 1, El
Sauz 2, Fleur and Fleur 1 concessions are owned by Mexalit S.A. de C.V.
("Mexalit"), which is owned 70% by Gangfeng and 30% by Cadence.
The Sonora Project holds one of the world's largest lithium resources and
benefits from being both high-grade and scalable. The current lithium
resources and reserves for the Sonora Lithium Project and the amounts
attributable to Cadence are available on our website here:
https://www.cadenceminerals.com/projects/sonora-lithium-project/.
A feasibility study report was published in January 2018. The report estimated
a pre-tax project net present value of US$1.253 billion at an 8% discount
rate, an Internal Rate of Return of 26.1% and Life of Mine operating costs of
US$3,910/t of lithium carbonate. It should be noted that under the published
feasibility study, the concession owned by Mexalit will be mined starting in
year 9 of the mine plan, ceasing at the end of the mine life in year 19.
In 2021, Mexican politicians from the MORENA party tabled a draught bill to
reform Mexico's energy sector, including statements that lithium would be
included among the minerals considered strategic for the energy transition and
that no new concessions for lithium exploitation by private companies could be
granted. Subsequent to the year-end, the Mexican senate elevated lithium
deposits to the category of "strategic minerals", declaring lithium's
exploration, exploitation, and use as the state's exclusive right.
We are constantly examining possible legislative changes, and Gangfeng is
ensuring that the mineral concessions remain legitimate. It is our current
view that the Decree passed by the senate only impacts licenses, concessions,
or contracts to be granted, NOT already those already granted, as is the case
for the Sonora Lithium Project. Therefore, at this point, we do not believe
there is a material impact on our joint venture areas.
PUBLIC EQUITY
The public equity investment segment includes active and passive investments
as part of 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 £5.26 million (6 months ended 30 June 2021: a profit of £3.12 million)
and a realised gain of £1.11 million (6 months ended 30 June 2021: £0.42
million). The majority of these profits were derived from the sale of European
Metals Holdings shares. The total return on investment for the Cadence equity
portfolio as of 28 September 2022 was 407%, or £9.95 million.
As of 30 June 2022, our public equity stakes consisted of the following:
Company Business Summary 30-Jun-22 31-Dec-21 30-Jun-21 31-Dec-20
£,000 £,000 £,000 £,000
European Metals Holding Ltd Lithium mine development 5,357 11,287 14,180 13,426
Charger Metals NL Lithium exploration 196 342 109 -
Macarthur Minerals Ltd Iron Ore mine development 103 181 327 329
Eagle Mountain Mining Ltd Copper exploration 47 122 153 -
Mont-Royal Resources Ltd Gold and Copper exploration 39 35 - -
Celsius Resources Ltd Gold and Copper exploration - - 103 -
Miscellaneous Various 5 7 6 6
Total 5,747 11,974 14,878 13,761
FINANCIAL RESULTS:
During the period, the Group made a loss before taxation of £5.05 million (6
months ended 30 June 2021: profit of £2.84 million, year ended 31 December
2021: loss of £0.14 million). There was a weighted basic loss per share of
3.136p (30 June 2021: profit 2.009p, 31 December 2021: loss 0.102p). During
the second half of the year, the Directors expect the results to reflect the
approximately £4.2m profit from the sale of the Group's Yangibana Joint
Venture Interest.
The total assets of the Group decreased from £23.01 million at 31 December
2021 to £21.93 million. Of this amount, the decrease of £6.23 million
represents the market value of our current investments at the period end, plus
there was an increase in our non-current investments of £3.30m.
During the period our net cash outflow from operating activities was £1.65
million, gross proceeds of £4.9m were raised through the issue of new shares
and our net cash position ended the period up £1.66 million at £1.99
million.
Kiran Morzaria
Director
28 September 2022
This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014.
For further information:
Cadence Minerals plc +44 (0) 20 3582 6636
Andrew Suckling
Kiran Morzaria
WH Ireland Limited (NOMAD & Broker) +44 (0) 20 7220 1666
James Joyce
Darshan Patel
CADENCE MINERALS PLC
STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 JUNE 2022
Unaudited Period ended Unaudited Period ended Audited
Year ended
30 June 30 June 31 December 2021
2021
2022
Notes £'000 £'000 £'000
Income
Unrealised (loss)/profit on financial investments (5,259) 3,116 577
Realised profit on financial investments 1,110 423 593
(4,149) 3,539 1,170
Share-based payments - (197) (197)
Other administrative expenses (906) (505) (1,604)
Total administrative expenses (906) (702) (1,801)
Operating (loss)/profit (5,055) 2,837 (631)
Finance income - 29 35
Finance cost - (4) (3)
Foreign exchange gains/(losses) 10 (21) 455
(Loss)/profit before taxation (5,045) 2,841 (144)
Taxation - - -
(Loss)/profit attributable to the equity holders of the Company (5,045) 2,841 (144)
Total comprehensive (loss)/profit for the period, attributable to the equity (5,045) 2,841 (144)
holders of the Company
Earnings per ordinary share
Basic (pence per share) 3 (3.136) 2.009 (0.102)
Diluted (pence per share) 3 n/a 1.899 n/a
CADENCE MINERALS PLC
STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 30 JUNE 2022
Share capital Share premium account Share-based payment reserve Investment in own shares Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 1,896 33,159 39 - (13,001) 22,093
Share based payments - - 197 - - 197
Transfer on exercise of options - - (9) - 9 -
Issue of share capital 7 50 - - - 57
Costs of share issue - (1) - - - (1)
Transactions with owners 7 49 188 - 9 253
Profit for the period - - - - 2,841 2,841
Total comprehensive profit for the period - - - - 2,841 2,841
Balance at 30 June 2021 (unaudited) 1,903 33,208 227 - (10,151) 25,187
Payment made in warrants - - 22 - - 22
Adjustment for shares held in Trust - - - (70) - (70)
Costs of share issue - (1) - - - (1)
Transactions with owners - (1) 22 (70) - (49)
Loss for the period - - - - (2,985) (2,985)
Total comprehensive loss for the period - - - - (2,985) (2,985)
Balance at 31 December 2021 1,903 33,207 249 (70) (13,136) 22,153
Transfer on exercise of warrants - - (10) - 10 -
Issue of share capital 241 4,670 - - - 4,911
Issue of shares held in Trust - 111 - 6 - 117
Costs of share issue - (376) - - - (376)
Transactions with owners 241 4,405 (10) 6 10 4,652
Loss for the period - - - - (5,045) (5,045)
Total comprehensive loss for the period - - - - (5,045) (5,045)
Balance at 30 June 2022 (unaudited) 2,144 37,612 239 (64) (18,171) 21,760
CADENCE MINERALS PLC
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2022
Unaudited Unaudited Audited
30 June 30 June 31 December
2022
2021
2021
Notes £'000 £'000 £'000
Assets
Non-current
Financial Assets 8,963 3,203 5,660
8,963 3,203 5,660
Current assets
Trade and other receivables 5,222 5,901 5,048
Financial Assets 5,747 14,878 11,974
Cash and cash equivalents 1,994 1,387 324
Total current assets 12,963 22,166 17,346
Total assets 21,926 25,369 23,006
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables 166 182 853
Total current liabilities 166 182 853
Equity
Share capital 4 2,144 1,903 1,903
Share premium 37,612 33,208 33,207
Share based payment reserve 239 227 249
Investment in own shares (64) - (70)
Retained earnings (18,171) (10,151) (13,136)
Equity attributable 21,760 25,187 22,153
to equity holders of the Company
Total equity and liabilities 21,926 25,369 23,006
CADENCE MINERALS PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD 30 JUNE 2022
Unaudited Period ended Unaudited Period ended Audited
Year ended
30 June 30 June 31 December
2022
2021
2021
£'000 £'000 £'000
Cash flows from operating activities
Operating (loss)/profit (5,055) 2,837 (631)
Net realised/unrealised loss/(profit) on financial investments 4,149 (3,539) (1,170)
Equity settled share-based payments - 197 197
Adjustment for issue of own shares 117 - (70)
Payments made through issue of warrants - - 22
(Increase)/decrease in trade and other receivables (170) (536) 346
(Decrease)/increase in trade and other payables (687) (113) 555
Net cash outflow from operating activities (1,646) (1,154) (751)
Taxation - - -
Cash flows from investing activities
Payments for current financial investments (176) (473) (830)
Receipts on sale of current investments 1,256 2,895 3,787
Payments for non-current financial investments (2,305) (318) (2,775)
Net cash (outflow)/inflow from investing activities (1,225) 2,104 182
Cash flows from financing activities
Proceeds from issue of share capital 4,911 57 57
Share issue costs (376) (1) (2)
Net loan repayments - (219) (220)
Finance cost - (3) (3)
Net cash inflow/(outflow) from financing activities 4,535 (166) (168)
Net increase/(decrease) in cash and cash equivalents 1,664 784 (737)
Foreign exchange movements on cash and cash equivalents 6 7 465
Cash and cash equivalents at beginning of period 324 596 596
Cash and cash equivalents at end of period 1,994 1,387 324
NOTES TO THE INTERIM REPORT
FOR THE PERIOD ENDED 30 JUNE 2022
1 BASIS OF PREPARATION
The interim financial statements have been prepared in accordance with
applicable accounting standards and under the historical cost convention. The
financial information set out in this interim report does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. The
Group's statutory financial statements for the year ended 31 December 2021
have been delivered to the Registrar of Companies. The auditor's report on
those financial statements was unqualified.
The principal accounting policies of the Group are consistent with those
detailed in the 31 December 2021 financial statements, which are prepared
under the historical cost convention and in accordance with UK adopted
International Accounting Standards (IAS).
GOING CONCERN
The Directors have prepared cash flow forecasts for the period ending 30
September 2023. The forecasts demonstrate that the Group has sufficient funds
to allow it to continue in business for a period of at least twelve months
from the date of approval of these financial statements. Accordingly, the
accounts have been prepared on a going concern basis.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results
2 SEGMENTAL REPORTING
The Company operates a single primary activity to invest in businesses so as
to generate a return for the shareholders.
3 EARNINGS PER SHARE
The calculation of the earnings per share is based on the loss attributable to
ordinary shareholders divided by the weighted average number of shares in
issue during the period.
Unaudited Unaudited Audited
six months ended six months ended year ended
30 June 2022 30 June 2021 31 December 2021
(restated)
£'000 £'000 £'000
Profit/(loss) on ordinary activities after tax (£'000) (5,045) 2,841 (144)
Weighted average number of shares for calculating basic earnings per share 167,656,144 148,420,359 148,535,664
Less: shares held by the Employee Benefit Trust (weighted average) (6,804,309) (7,020,000) (7,020,000)
Weighted average number of shares for calculating basic earnings per share 160,851,835 141,400,359 141,515,664
Share options and warrants exercisable 8,562,500 8,198,405 8,998,405
Weighted average number of shares for calculating diluted earnings per share 176,218,644 149,598,764 150,514,069
Basic (loss)/profit per share (pence) (3.136) 2.009 (0.102)
Diluted profit per share (pence) n/a 1.899 n/a
4 SHARE CAPITAL
Unaudited Unaudited Audited
30 June 2022 30 June 2021 31 December 2021
£'000 £'000 £'000
Allotted, issued and fully paid
172,719,813 ordinary shares of 1p (30 June 2021 148,649,098 ordinary shares of 1,727 1,486 1,486
1p, 31 December 2021: 148,649,098 ordinary shares of 1p)
173,619,050 deferred shares of 0.24p (30 June and 31 December 2021: 417 417 417
173,619,050)
2,144 1,903 1,903
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