Broker Zeus has maintained its positive valuation of Cadence Minerals (KDNC ), setting a target of 14.6p in its latest note on the company.
Zeus commented extensively on Cadence’s move to arbitration in regard to the Sonora lithium project in Mexico. This follows moves by the Mexican government a few years ago to cancel concessions that had already been granted.
Funding for the arbitration has been secured via a third party, LCM.
“The funding arrangement with LCM allows Cadence to pursue its legal claims in relation to the Sonora lithium project in a way that keeps balance sheet flexibility and at no upfront cost to Cadence,” said Zeus.
“We believe that the Sonora lithium project has value for Cadence and are keen for a resolution. In the meantime, Cadence can fully concentrate on bringing its Azteca plant into production as an early cashflow generator for its larger Amapá project.”
Zeus reckons that Cadence’s interests in Sonora, which are held alongside Chinese major Ganfeng, “have value”.
Significant ore could be mined from in due course from the Cadence joint venture, with Zeus talking about as much as 72,000 lithium carbonate equivalent.
“Ganfeng and Cadence believe the cancellations violate Mexican and international law,” said Zeus.
Zeus previously valued the joint venture with Ganfeng at 2.7p per Cadence share.
“This was based on the NPV8 reported in the Bacanora DFS for the Sonora lithium project (2018 before Bacanora was bought by Ganfeng) to arrive at a value of $209m (16.7% of the $1,250m NPV reported which is Cadence’s share of the total lithium resource). We applied an aggressive risk rating and only included 5% of the NPV to reflect the “challenges” for foreign companies wanting to mine lithium in Mexico (and the age of the NPV) to arrive at a valuation of $10.4m for Cadence, the equivalent of 2.7p at the time – and now 2.5p given new shares in issue.”
Zeus also speculates that a purchase by Ganfeng might take place, to simplify planning for any restart of the development.
“We believe that Cadence’s share of Sonora is significant,” Zeus concludes.
“We still see fair value at 14.6 per share for Cadence and this is before any upside from the litigation with the Mexican government.”
View from Vox
An encouraging development with regard to a long-standing issue. The main action for Cadence is now at Amapa in Brazil. So, in a way, a win in regard to Sonora at this point might be regarded as a windfall. Certainly, the shares have lately discounted any value for Sonora, but note that Zeus says its target for Cadence is 14.6p “before any upside from the litigation.”