Cadence Minerals (KDNC ) released statements from its Chairman and its CEO in a FY21 update this morning, detailing progress on the company's two main investments as well as overall market conditions in the iron ore and lithium mining sectors.
Amapa Iron Ore Project, Brazil
In his review, Chairman Andrew Suckling said the highlight of the year was "formalising and successful settlement of the "pending" investment into the Company's flagship Iron Ore Project at Amapa, Brazil. ...early findings from our commissioned studies and reports are increasingly positive, giving the Board every confidence that our investment there will be a great and lasting success."
Cadence currently has 27% interest in the Amapa Project, a large-scale iron open pit mine with associated rail, port, and beneficiation facilities. The 27% interest is earned through a US$6 million investment over two stages, finalised in March 2022. CEO Kiran Morzaria said about the project: "The Amapa Project gives Cadence the potential for an exceptional return on investment in the run-up to full production and an opportunity to become a significant shareholder in a mid-tier iron ore producer ... our priorities on the Amapa Iron Ore Project will be the publication of a maiden Ore Reserve Estimate, followed by the release of a PFS on the project."
European Metals Holdings (EMH)
Cadence's second major investment is European Metal Holdings (EMH) where the company has an 8.1% interest. EMH is a Czech-based hard rock lithium producer. Mr Suckling reported" "[EMH] has painstakingly continued to complete reviews and studies that highlight its low carbon footprint while it evolves into the largest hard rock lithium producer in Europe." CEO Kiran Morzaria added "During the year, EMH's Cinovec Project has been significantly de-risked and is moving rapidly towards a final investment decision."
State of lithium and iron ore industries:
The CEO had a positive outlook on the state of the lithium and iron ore industry: "Recovery from Covid-19 has resulted in positive demand growth, with supply gradually adjusting to match this increasing demand. This has proven beneficial in practically all of the exploration and development assets Cadence has invested in, in particular lithium and iron ore, which by the end of the year had increased by 485% and 47% respectively in price.
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Iron ore prices reached a new high in May, fuelled by China's robust growth earlier in the year, to which supply struggled to respond. Prices averaged $160/tonne for the entire year, the highest level since 2011."
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The buoyancy of the lithium price has been driven by the market tightening as the electric vehicle revolution accelerates. Demand has eroded the oversupply seen in 2019 and 2020. This market tightness is projected to persist, with Credit Suisse predicting that lithium demand might triple by 2025 from current levels, and that supply would be stretched to meet that demand, with higher prices required to incentivise the necessary supply response
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As a result of this substantial shift in consumer behaviour, demand for lithium is expected to climb by 30 percent to 675,000 tonnes LCE in 2023, up from 2021 levels. Global battery consumption is predicted to climb 14-fold by 2030, with Statista projecting 1.8 million tonnes of lithium demand by 2030."
Mr Suckling also expressed confidence in continued demand for iron ore due to growing Chinese demand and President Biden's $1 trillion infrastructure bill: "For Cadence, sustained higher commodity prices, especially those of Lithium and Iron Ore, has remained one of the great positives across our portfolio, and together with the successful settlement and initial investment into the Amapa project, your Board believes we continue to be well placed to meet these challenges, both present and future."
Outlook:
The Chairman and CEO both expressed some concerns about the state of the industry including global commodity cost inflation, supply chain disruptions, interest rate hikes, and large swings in energy and capital costs.
Despite these challenges, the CEO believes Cadence's strategy of investing in assets that are "undervalued, de-risked, or have strategic advantages" will continue to pay off in the long run. He commented: "This plan yielded fruit in 2021, with the Company continuing to report profitable returns on its public investments and significant operation progress being made across its core investments".
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