Shares of Cadence Minerals appear to be bumping along the bottom of their trading range near 5p and a £10m market cap. This is despite the recent positive read across from another “big project” small cap – Horizonte (HZM) getting its Araguaia ferronickel project over the line, wrong footing the market, after an substantial autumn sell off in that stock. Shares of HZM have more than doubled on this news – squeezing shorters painfully.
Amapa Iron Ore Project
What the market may be missing is that KDNC is actually in a excellent position vis a vis its investment in the Amapa Iron Ore project. KDNC has been, under the radar, hitting its targets, delivering a robust pre-feasibility study, accelerating its operational licensing, negotiating with government bodies et al. In terms of the financial “barriers”, which is where many projects stall, Amapa seems to also well advanced in this regard with the project executing a strategic development and financing MOU late last year.
Moreover, the company has indicated that they are looking to repay historic secured creditors, who have prevented Amapa from shipping its iron ore stockpile, something which investors have thus far not factored in.
Looking back at previous announcements and some simple maths I estimate this debt was worth some $130m. If KDNC can use the stockpile as a one time settlement this would clearly be a great coup for it, and is not something factored in at a 5p share price. Ultimately the elimination of the $130m debt package would be regarded as a significant win.
In addition, there could be a brake price sentiment based on the company’s current debt facility, which even though its even though this is being paid out in cash, may be being perceived as a loan being paid by the issue of shares.
However, one would estimate KDNC may only £1.3m to clear this debt, a relatively small amount of cash for a company which has other significant assets in its other equity investments worth circa £4 to £5 millon. One would imagine if there was an announcement saying that Riverfort were out of the game, this would remove the current apparent share price cap.
The market already knows that Amapa is has a NPV $949m and with assets free of encumbrances Amapa look like a tasty morsel for iron mining companies looking for expansion in Brazil. Major players are always on the look out for projects where juniors like KDNC have done all the heavy lifting to get a project production ready.