Cadence Minerals — Sonora project update

Cadence Minerals (AIM: KDNC)

Last close As at 21/05/2024

GBP0.04

0.00 (0.00%)

Market capitalisation

GBP8m

More on this equity

Research: Metals & Mining

Cadence Minerals — Sonora project update

Cadence Minerals has provided an update on the status of the Sonora lithium project in Mexico. The company holds a 30% interest in seven project concessions through the JV entities Mexilit and Megalit, which are majority controlled by Ganfeng. Following the amendments to the Mexican mining law introduced in April and May 2023, the General Directorate of Mines (DGM) issued a formal notice indicating that all lithium concessions underpinning the Sonora project were cancelled, citing a lack of sufficient disclosure regarding the minimum investment obligations. Both Ganfeng and Cadence believe that the required obligations were met in full and sufficient evidence was provided to the Mexican authorities. The decision is not final and is subject to ongoing appeals. While the news is somewhat disappointing, we note that Sonora represents a relatively small part of our valuation of Cadence, which is driven by the Amapá iron ore project.

Written by

Andrey Litvin

Energy and Resources Analyst

Cadence Minerals_resized

Metals & Mining

Cadence Minerals

Sonora project update

Project update

Metals and mining

31 August 2023

Price

6.9p

Market cap

£11.9m

Net cash (£m) at 31 December 2022

0.1

Shares in issue

172.7m

Free float

100%

Code

KDNC

Primary exchange

AIM

Secondary exchange

AQSE

Share price performance

Business description

Cadence Minerals is an early-stage investment and development company in the mining space. Its public equity holdings include rare earths and lithium developers, and its non-listed interests include lithium in Mexico and a 30% interest in the Amapá iron ore restart project in Brazil.

Analysts

Andrey Litvin

+44 (0)20 3077 5700

Andrew Keen

+44 (0)20 3077 5700

Cadence Minerals is a research client of Edison Investment Research Limited

Cadence Minerals has provided an update on the status of the Sonora lithium project in Mexico. The company holds a 30% interest in seven project concessions through the JV entities Mexilit and Megalit, which are majority controlled by Ganfeng. Following the amendments to the Mexican mining law introduced in April and May 2023, the General Directorate of Mines (DGM) issued a formal notice indicating that all lithium concessions underpinning the Sonora project were cancelled, citing a lack of sufficient disclosure regarding the minimum investment obligations. Both Ganfeng and Cadence believe that the required obligations were met in full and sufficient evidence was provided to the Mexican authorities. The decision is not final and is subject to ongoing appeals. While the news is somewhat disappointing, we note that Sonora represents a relatively small part of our valuation of Cadence, which is driven by the Amapá iron ore project.

Year end

Income*
(£m)

PBT**
(£m)

EPS**
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/20

10.4

7.8

6.9

0.0

1.2

N/A

12/21

1.2

(0.1)

(0.1)

0.0

N/A

N/A

12/22

(4.0)

(5.5)

(3.4)

0.0

N/A

N/A

12/23e

0.0

(1.8)

(1.1)

0.0

N/A

N/A

Note: *Income represents unrealised/realised profits and losses on financial investments. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

The Sonora lithium project consists of nine granted concessions and is being developed by Ganfeng. Cadence holds interests in seven concessions through its 30% ownership of the Mexilit and Megalit JVs with Ganfeng, which controls the remaining 70% in the entities. In April and May, the Mexican government approved amendments to the mining law, declaring lithium a strategic sector and granting a state-owned entity an exclusive right to engage in lithium mining operations. Cadence and Ganfeng believe that these amendments do not apply to pre-existing concessions, Sonora in particular, and therefore should not affect the project’s status. This is consistent with the terms of Mexico’s constitution.

Nonetheless, the DGM initiated a review of the nine concessions underpinning the Sonora project and in August issued a formal cancellation decision, citing the failure to submit sufficient evidence of meeting the required minimum investments. Both companies are of the opinion that the minimum investment threshold was met, and the required information was provided to the authorities in a timely manner. The DGM decision is not final and is subject to appeals. Ganfeng continues to engage with the Mexican authorities, but no agreement has been reached so far.

While the news is disappointing, we note that Sonora represents 16% of our base case SOTP valuation of Cadence of 32.2p/share (13% of our bull case valuation of 57.1p). As we noted in our initiation report, the development and progression of Sonora is uncertain, and our value of the project allows for the political risks in Mexico. Importantly, the company’s focus remains solely on the Amapá iron ore project, whose value contributes 21.1p/share to our base case valuation of Cadence (43.5p bull case). We believe the market appears to be placing little value on Amapá and see the de-risking of the project through progressing to full bankable feasibility study status and securing a JV partner as the main catalysts for Cadence in the near term.

General disclaimer and copyright

This report has been commissioned by Cadence Minerals and prepared and issued by Edison, in consideration of a fee payable by Cadence Minerals. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Cadence Minerals and prepared and issued by Edison, in consideration of a fee payable by Cadence Minerals. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Cadence Minerals

View All

Metals & Mining

Cadence Minerals — Amapá optimisation adds value

Cadence Minerals_resized

Metals & Mining

Cadence Minerals — Real progress, real value

Cadence Minerals_resized

Metals & Mining

Cadence Minerals — Sonora project update

Metals & Mining

Cadence Minerals — A mispriced miner

Latest from the Metals & Mining sector

View All Metals & Mining content

Metals & Mining

Alkane Resources — Kaiser takes on the World

Metals & Mining

Pan American Silver — A taste of things to come

Metals & Mining

Wheaton Precious Metals — A strong start to FY24

Research: Industrials

paragon — Navigating the road to redemption

paragon continued its debt reduction programme in Q223 with the disposal of semvox. Operating performance progressed positively with H123 sales rising 7% and EBITDA margin in Q223 exceeding 10%, although the business mix shifted towards Mechanics as new contracts ramped up. Management has maintained FY23 guidance and we have modestly reduced our earnings estimates to reflect the mix change as well as higher interest in FY23. As the debt reduction programme continues into FY24 we expect lower interest charges and improving operational cash flows. Assuming the successful further partial redemption of the Eurobond by January 2024, investor focus should return to the growth potential.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free