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Cadence Minerals (AIM/NEX: KDNC) is pleased to announce its final results for the year ended 31 December 2021. The full Annual Report and Audited Financial Statements will be made available on the Company’s website at https://www.cadenceminerals.com/  and will be posted to shareholders on the 30 June 2022

CHAIRMAN’S STATEMENT

I am pleased to present the Company’s Annual Results for the year ended 31 December 2021.

Maintaining a balanced perspective on the macro picture has become increasingly difficult, with unexpected factors such as Russia’s invasion of Ukraine creating a supply and price squeeze for many commodities. As I review the year and reflect on global events, and again on events more specific to our company outlook, it is remarkable how the macro backdrop has changed in totally unexpected ways. Previously unprecedented levels of economic stimulus have now been overtaken by inflation and interest rate hikes, while the shift towards globalisation has slowed down with the prospect of a localised war in Ukraine becoming more entrenched and widespread.

On behalf of the Board of Directors (Board) and management, I would like to thank all of our advisors, consultants and service providers and especially our shareholders for their support throughout the year. The Board and company have resumed pre pandemic work schedules and trips to visit site and project operational hubs, along with viewing potential investment opportunities and attending industry conferences. The opportunity to travel freely, to reconnect with people in person and to see projects in transition has truly been a highlight. 

Our portfolio companies have continued to progress and have in many cases delivered landmark achievements. In no order of priority, the Board congratulates Macarthur Minerals on completing the Bankable Feasibility Study and moving significantly closer to operational success. European Metal Holdings 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. As I have already stated, we continue to look for opportunities to unlock and discover value across our whole portfolio. Given the increased underlying prices of Lithium and Rare Earths we expect to be able to take advantage of these opportunities in the coming year. Recent announcements from the current Mexican Government over potentially controlling the nation’s domestic Lithium supply have in no way put paid to our hopes that Bacanora’s JV with Gangfeng will prove to be a success. 

Of course, the highlight of the year was the formalising and successful settlement of the ‘pending’ investment into the Company’s flagship Iron Ore Project at Amapa, Brazil. This process triggered the release of escrow funds to realise our investment, which then became a physical manifestation of the same when Iron Ore shipments commenced from the Stockpile at the Port of Santana. I write this after returning from a truly inspirational visit to see the project operations, and after viewing the port, railway and mine assets in Macapa (the Amapa system). Our investment there has also precipitated a transformation in the area’s infrastructure, which will in time make a difference to the standard of living for the local people. Although this process has only just begun, 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.

On a practical level, challenges still persist today, with global disruption to shipping and freight rates, along with increased costs associated with the capital and equipment required to bring projects into production. While Cadence is not alone in facing these challenges, your Board firmly believes we remain well positioned in the underlying commodity markets that reflect the Cadence portfolio. China continues to be the dominant focus of so much global supply and demand analysis, and with the prolonged lockdowns many commentators have expressed concern about economic expansion in the region. Initial analysis still suggests that economic stimulus and infrastructure spending will continue, and this, together with the Biden $1 trillion infrastructure bill passed in November, will help sustain steel demand and therefore continue to support the demand for Iron ore, a key focus for Cadence. 

As the impact of the pandemic begins to recede, we face new challenges of higher interest rates and inflation. 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. 

In closing, I would like to personally thank my fellow Board members, staff and partners in the wider Cadence Community and of course all Shareholders for their continued encouragement and confidence in the Company.

Andrew Suckling

Non-Executive Chairman

CHIEF EXECUTIVE OFFICER’S COMMENTARY

I am pleased to present Annual Results for the year ended 31 December 2021, a full review of business activities during the year is provided within the Strategic Report.

The results presented for the period ended 31 December 2021 reflect a historical position in terms of the Company’s progress and financial position, therefore we have included additional information on key post-year-end events in the Strategic Report.

Cadence has continued to pursue its strategic objectives despite the continued volatility in 2021 because we think that assets that are undervalued, de-risked, or have strategic advantages will outperform their peers in the long run. 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.

The relaxation of Covid-19 restrictions, combined with the implementation of mass vaccination programmes and significant levels of monetary and fiscal stimulus by many governments around the world, resulted in a rapid resurgence of global economic activity in 2021: the IMF estimates 5.9 percent global growth for the year. The magnitude of this economic recovery was most pronounced in Europe and the United States, where, after contractions of 6.3 percent and 3.4 percent in 2020, annual growth rates of 5 percent and 6 percent, respectively, returned in 2021. Such rapid economic expansion was also observed in major emerging markets, with China growing by 8 percent and India growing by 9.5 percent.

However, the pace of recovery slowed in the second half of the year. Higher inflation emerged as part of the recovery, exacerbated by persistent pandemic-induced bottlenecks in global supply chains. Domestic inflationary pressures, currency movements, and the prospect of further US monetary tightening have necessitated more significant monetary policy responses in some emerging markets, including Brazil, where interest rates have been raised by 500 basis points since August in an effort to stem the tide of capital outflows, which has pushed the economy into recession

The impact of the various global fiscal stimuli has meant that the mining industry is facing the consequences of global commodity cost inflation, which is causing supply chain disruptions, consumer inflation, and large variations in energy costs and capital costs.

Overall, a progressive 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 hadincreased by 485% and 47% respectively in price.

Iron Ore tracked economic progress and were affected by geopolitical shifts throughout the year. Global crude steel production is expected to have climbed by 4.3 percent in 2021, setting a new high. Europe and the Americas experienced the most rapid increase. In China, the world’s largest steel producer, output reached a new high in May before declining economic mood and a faltering real estate sector weighed on output. 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.

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 

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.

Despite the strong market fundamentals, lithium production is expected to be 441,000 tonnes LCE in 2021, down from 464,000 tonnes in 2020. However, lithium output is predicted to increase at a 13.4 percent CAGR to 679,000 tonnes in 2023. According to Macquarie, the deficit this year will be 2,900 tonnes of LCE, rising to 20,200 tonnes in 2022 and 61,000 tonnes in 2023.

Our portfolio has been focused on two main investments, and the first is the private Amapa Iron Ore Project. The key outstanding item for Cadence to complete its initial US$2.5 million (20%) investment in the Amapa Project was the execution of a settlement agreement with the secured bank creditors. This was achieved at the end of the year, with Cadence vesting its 20% in February 2022 and subsequently increasing its stake to 27% in March 2022.

DEV Mineração S.A’s (“DEV”) the owner of the Amapa Project also began shipping of its 58% iron ore stockpiles during the years it shipped some 143,000 wet tonnes. The majority net proceeds of these sales is being paid to the secured bank creditors as part of the settlement agreement. 

Operationally DEV progress has been solid, with DEV continuing to invest in the project with the priorities on the completion of a Pre-feasibility Study (‘PFS’) and the rehabilitation of the tailings dams at the Amapa Iron Ore Mine.

As we have mentioned on numerous occasions, the opportunity to invest in such a project is rare within our industry, and we believe this project provides us with a potentially transformative asset for our Company. 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. 

The second of our key investments is European Metals Holdings (“EMH”), whose strategy is to become a Czech based lithium and tin producer. During the year, EMH’s Cinovec Project has been significantly de-risked and is moving rapidly towards a final investment decision.

The progress and performance of our investment portfolio was well reflected in our share price performance during the year, which increased from around 15 pence to 28 pence. This was clearly driven by the agreement reached with the Amapa Iron Project’s secured bank creditors at the end of 2021.

During the year, we saw prices of up to 31 pence, which was driven by an increase in iron ore prices that reached US$220 per tonne in August, but prices then fell to US$90 by November 2021, which was reflected in our share price, which reached 17 pence in October 2022. Cadence’s share price has increased by more than 314 percent over the last two years, representing significant growth.

However, 2022 has been a very different story, with inflationary pressures affecting the entire equity market (the SP 500 is down some 20 percent this year). Cadence’s share price performance in 2022 reflects the performance of our equity investments, such as European Metals Holdings and other higher risk assets. This is despite our portfolio continuing to make solid operational progress and being fundamentally the same investments that drove our share price increases in 2020 and 2021.

During 2022, 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. We will also plan to increase our stake in the asset. In addition, we anticipate that our investment in Lithium Technologies and Lithium Supplies will have listed during 2022, and we are hoping to crystallise some additional value from our other privately held investments. 

I would like to express my gratitude to the Cadence team and our investee companies, who have all worked tirelessly to bring the Company and its investment to their current position. We believe that concentrating risk across a few important investments and commodities will pay off. 

Kiran Morzaria

Chief Executive Officer

INVESTMENT REVIEW

As outlined in the section “Our Business and Investment Strategy,” Cadence operates an investment strategy in which we invest in private projects via a private equity model and in public equity. In both investment classes, we take either an active or passive role. We have reported in these segments below.

PRIVATE INVESTMENTS, ACTIVE

The Amapa Iron Ore Project, Brazil
Interest – 20 % at 31/12/2022 increased to 27% by 31/05/2022 

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 will invest US$6 million over two stages in a joint venture company. The first stage is for 20% of the JV, the consideration for which is US$2.5 million. The second stage of investment is for a further 7% of JV for a consideration of US$3.5 million.

Vesting of Equity Interest in the Amapa Project

During the year, the key target for Cadence was to vest its first 20% in the Amapa Project. This required DEV and the investors (Cadence and Indo Sino via our joint venture company) to reach a settlement agreement (“Settlement Agreement”) with the secured bank creditors.

This was achieved on the 29 December 2021, when all the parties entered into a binding Settlement Agreement. The original credit facility provided to DEV by the secured creditors had a principle amount outstanding amount of US$135 million. The Settlement Agreement settles all of the principal amount plus all interest, default interest, outstanding costs and fees (“Settlement Amount”).

As a result of the Settlement Agreement and the Judicial Restructuring Plan approved in August 2019, the total principal amounts owed to the secured and unsecured creditors in classes I to IV of DEV have been reduced from approximately US$231 million to approximately US$103 million or approximately 45% of the original value.

The Settlement Amount will be paid over two years from the effective date of the Settlement Agreement, and it is to be satisfied by the net profits from the sale of DEV’s iron ore stockpiles. The unsecured creditors will be paid from DEV’s free cash flow over a period of nine years. Under the Settlement Agreement, DEV remains the obligor with the Secured Creditors having no recourse of repayment of the Settlement Amount to either Cadence or Indo Sino. The Settlement Agreement will remain secured over all of DEV’s equity and assets. 

Although the Settlement Agreement was executed within the year, the required contractual and regulatory documentation was completed post year end and Cadence vested its 20% interest in February 2022 and its 27% in March 2022. 

Iron Ore Shipments

During the year the Commercial Court of São Paulo (“the Court”) ruled that DEV could commence the shipment of the iron ore stockpiles situated at DEV’s wholly-owned port in Santana, Amapa, Brazil. DEV was initially to export sufficient iron ore to realise a US$10 million of iron ore (after the deductions of all logistical, regulatory, shipping and sale costs) from the Amapa stockpiles at the port. 

By the end of May 2021 DEV had shipped three cargoes totalling approximately 143,500 wet tonnes of 58% sinter feed iron ore. After all costs these sales netted DEV circa US$8 million. In July 2022, the Court permitted the export a further US$10 million of iron ore (after the deductions of all logistical, regulatory, shipping and sale costs). However, with the 58% iron ore pricing decreasing some 40% from May to August 2021 and shipping pricing remaining strong during the period DEV determined that there was a substantial risk to profitably by continuing to ship while shipping prices remained at high levels (US$ 80 – US$90 per wet tonne)

Once the Settlement Agreement had been completed in February 2022, DEV has been free to ship from its stockpiles and is not restricted by the Court permissions outlined above. Subsequent to the year end DEV shipped a further 48,492 wet tonnes of 58% iron ore sinter fines, DEV expect to receive circa US$ 900k for this shipment.  Shipping prices have continued to increase during 2022, driven by higher diesel prices and limited availability of vessels. This combined with iron price volatility has meant that DEV is currently not shipping form its stockpiles.

The vast majority of the net proceeds from the sales of the Iron Ore has been paid to the secured bank creditors as part of the Settlement Agreement. The remainder of the funds have been applied to DEV operations.

Operations Review

The operational focus for the year at the Amapa Project has  been the start the rehabilitation process of the project. This has primarily focused on tailing dam maintenance. DEV has employed a civil engineer and two geotechnical consulting firms to advance the work programme, including monitoring, geotechnical stability testing and statutory reporting. The end goal is to ensure that the current dams will be suitable for future operations amid Brazil’s more stringent regulatory environment.

In addition, DEV also began early rehabilitation of light infrastructure, the regularising the statutory reporting with the federal mining authority and state environmental authorities.

The other important focus for DEV and Cadence was to start the PFS. This began in 2021 with DEV appointing several internationally accredited engineering and consulting firms to carry out  the PFS. At the time of writing The PFS is progressing as expected, with the consulting engineers for the mine operations, ore reserve estimation, metallurgy, processing, infrastructure and shipping having submitted their draft reports. 

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 Amapa Project’s Current Development Plan

The PFS, once complete will outline more fully the development timelines, capital required to achieve the stated project aims. Subsequent to the publication of an economic PFS we expect the 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.

Cadence and its joint venture partners are having early discussions with potential debt providers and corporate financiers, which we will advance once the PFS is complete. On completion of the DFS and securing debt and equity financing project construction will commence.

Lithium Technologies Pty Ltd & Lithium Suppliers Pty Ltd (“LT” & “LS”)
Interest – 31.5% at 31/12/2022 and 31/05/2022 

In December 2017, Cadence Minerals announced that it had executed binding investment agreements to acquire up to 100% LT & LS, which was subsequently varied to acquire three prospective assets in Australia that are in regions with proven high-grade lithium mineralisation.

LT and LS, through their subsidiaries, are the holders of two prospective exploration licenses and one exploration application in Australia and a further seven exploration license applications in Argentina.

All of the licenses and applications target prospective 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)2.

During the year we saw a renewed interest in hard rock lithium projects in Australia. As such we increased our investment to 31.5% into LT & LS which funded operations on the Litchfield exploration license.

Satellite imagery verified the geology along the Litchfield exploration license north-west boundary is comparable to Core Lithium Ground. LT & LS’s geological consultant conducted intensive surface sampling across four target areas within the NW quadrant, taking 657 samples to determine the potential for contiguous mineralisation. The sampled areas mostly comprised metamorphic rocks linked to the Burrell Creek formation – a host rock for the regional occurrences of pegmatites. The samples results were returned in 2022, these results confirmed LT & LS’s view that the areas adjacent to Core Lithium boundary are prospective for lithium pegmatites.

Subsequent to the year end Cadence and the remaining shareholders entered into a conditional sale of 100% of LT and LS.  The consideration for LT and LS is up to A$ 21.05 million (£11.82 million). Cadence has 31.5% of LT and LS and would receive up to A$ 6.63 (£3.72 million). The Buyer is a public, unlisted company in Australia (“Buyer”). 

The acquisition of LT and LS has several conditions precedent, including the completion of due diligence and the relevant regulatory approval. Assuming this is successful, the Buyer will acquire 100% of LT and LS  through a mixture of cash and shares partially paid on completion of the sale of LT and LS and the remainder paid on the achievement of key performance milestones. 

The Buyer has committed to spending at least A$4 million on the exploration of Litchfield during the three years post the completion of the sale. Should the milestones not be achieved during this period, the respective consideration will not be payable.

The proceeds received by the Company will be used for reinvestment as per our investment strategy. In relation to the shares received as part of the consideration, the Company will be bound by an escrow agreement with the Buyer as per the regulatory authorities in Australia and will be in the form and substance consistent with the ASX Listing Rules. After the lapse of the escrow arrangement, Cadence will retain or dispose of these shares as per our investment strategy. 

PRIVATE INVESTMENTS, PASSIVE

Sonora Lithium Project, Mexico
Interest – 30% at 31/12/2021 and 31/05/2022

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 larger lithium resources and benefits from being both high grade and scalable. The polylithionite mineralisation is hosted within shallow dipping sequences, outcropping on the surface.  A Mineral Resource estimate was prepared by SRK Consulting (UK) Limited (‘SRK’) in accordance with NI 43-101. The current lithium resources and reserves for the Sonora Lithium Project and the attributable amounts 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, which confirmed the positive economics and favourable operating costs of a 35,000 tonnes per annum battery-grade lithium carbonate operation. Thefeasibility study report estimates a pre-tax project net present value of US$1.253 billion at an 8% discount rate and 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 cease at the end of the mine life in year 19, and as such, assuming Cadence retains its position, any net realisable economic benefit to Cadence would only accrue at this time.

The full report can be found here: https://www.bacanoralithium.com/pdfs/Bacanora-FS-Technical-Report-25-01-2018.pdf

Summary of Activities

The most significant development for the Sonora Lithium project both during 2021 and 2022, was that Ganfeng completed the acquisition of the Sonora Lithium Project.

Although this does not directly affect the terms of our Joint Venture, having Gangfeng as a partner in the development of this project is highly encouraging , given that Gangfeng’s involvement in the development of the project to date and their extensive experience in the lithium market holding company is the world’s third-largest and China’s largest lithium compounds producer and the world’s largest lithium metals producer in terms of production capacity.

Whilst COVID-19 has impacted the progress on the Sonora Lithium Project, work to complete the front-end engineering design (“FEED”) has continued throughout the period.  Ganfeng is currently appointing a Chinese Design Institute to complete the FEED with initial site layouts scheduled for Q2 2022. Ganfeng is continuing to work with its equipment suppliers and, along with the Company, is maintaining its previously advised project delivery schedule with first lithium production in H2 2024.

Rescue and removal of surface vegetation and topsoil in the area required for the construction of the lithium

processing plant have been completed. Plant site location survey, geotechnical, and hydrogeological works

have also been completed. Works to build the construction road and early work camp have commenced. Site works for bulk earthworks are expected to commence in late 2022.

On September 30, 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 the exploration, exploitation, and use of lithium to be the exclusive right of the state.

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 to our joint venture areas. 

Yangibana Project, Australia
Interest – 30% at 31/12/2022 and 31/05/2022 

The Yangibana Project is a significant Australian Rare Earths Project, containing substantial Neodymium and Praseodymium resources. The Project currently covers approximately 650 square kilometres. The Project is located in the Gascoyne region of Western Australia, some 250 kilometres northeast of Carnarvon. 

Cadence holds interests in tenements covering some of the prospective Gifford Creek Ferrocarbonatite Complex. Through wholly-owned subsidiaries, Cadence holds:

·      30% interest in 3 Mining Leases, 6 Exploration Licences, and 2 General Purpose Leases;

·      3 Mining Licenses Include:M09/159,M09/161,M09/163;

·      6 Exploration Licenses Included: E09/1043, E09/1049, E09/1703, E09/1704, E09/1705, E09/1706;

·      2 General Purpose Leases: G09/11, G09/13.

The tenements in which Cadence holds a 30% interest are in joint-venture with Australian listed Hastings Technology Metals (“Hastings”), and Hastings carries all costs up to the decision to commission a bankable feasibility study.

A definitive feasibility study published in 2017, modelled two production scenarios the second of which had included within it 808,000 tonnes of plant feed from one of our joint venture areas (Yangibana) in year 6. This production target and additional production target from the definitive feasibility study indicates that 11% of the plant feed will come from our joint venture area[*].

The economic model contemplated by Hastings assumes Cadence through its subsidiary will participate in the and mining of the deposits held 70% by Hastings and 30% by Cadence. Assuming there is a development of the mine by the joint venture a new Mining Joint Venture Agreement will need to be agreed and put in place to replace the existing joint venture documentation and regulate the arrangements between the participants for the mine development. No costs or revenue ascribed to 30% interest in the deposits held by Cadence were reported in the financial modelling published by Hastings.

Although Hastings Technology Minerals has progressed the development of the Yangibana Rare Earth project, most of this has been in relation to its wholly owned assets, with the only a change being reassessment of our joint venture mineral resources and reserves occurring in July 2021. There was no material difference in the recalculation of our portion of the resource and reserves; an updated summary can be found on our website here:https://www.cadenceminerals.com/projects/yangibana-rare-earth-project-2/. 

PUBLIC EQUITY

The public equity investment segment includes both 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 profit of £0.57 million (2020:  £10.24 million) and a realised gain of £0.59 million (2020: £0.07 million). The majority of these profits were derived from the sale of European Metals Holdings shares. The total unrealised gains on our equity portfolio as at the end of 31 December 2021 was £9.27 million.

As of 31 December 2021, our public equity stakes consisted of the following

PUBLIC EQUITY (ACTIVE)

European Metals Holdings Limited (“European Metals”)
Interest – 8.1% at 31/12/2021 and 31/05/2022

Cadence has held an investment in European Metals since June 2015. As of year-end, Cadence held 8.1% in European Metals.

European Metals owns 49% of Geomet s.r.o. with 51% owned by CEZ. CEZ is a significant energy group listed on various European Exchanges. Geomet s.r.o. owns 100% of Cinovec which hosts a globally significant hard-rock lithium deposit with a total Indicated Mineral Resource of 372.4Mt at 0.45% Li2O and 0.04% Sn and an Inferred Mineral Resource of 323.5Mt at 0.39% Li2O and 0.04% Sn containing a combined 7.22 million tonnes Lithium Carbonate Equivalent and 263kt of tin, as reported to ASX on 28 November 2017 (Further Increase in Indicated Resource at Cinovec South).

An initial Probable Ore Reserve of 34.5Mt at 0.65% Li2O and 0.09% Sn reported on 4 July 2017 (Cinovec Maiden Ore Reserve) has been declared to cover the first 20 years’ mining at an output of 22,500tpa of battery-grade lithium carbonate reported on 11 July 2018 (Cinovec Production Modelled to Increase to 22,500tpa of Lithium Carbonate). 

This makes Cinovec the largest hard-rock lithium deposit in Europe, the fourth largest non-brine deposit in the world and a globally significant tin resource. In June 2019 EMH completed an updated Preliminary Feasibility Study, conducted by specialist independent consultants, which indicated a return post tax NPV of USD1.108B and a post-tax IRR of 28.8%. Subsequent to the year end, in January 2022 EMH updated the 2019 PFS, which indicated a post tax NPV of US$1.938Bn and a post-tax IRR of 36.3%.

The study confirmed that the Cinovec Project is a potential low operating cost producer of battery grade lithium hydroxide or battery grade lithium carbonate as markets demand. It confirmed the deposit is amenable to bulk underground mining. Metallurgical test-work has produced both battery grade lithium hydroxide and battery grade lithium carbonate in addition to high-grade tin concentrate.

The Definitive Feasibility Study continues, albeit with some minor delays related primarily to Covid-19 and the effect that has had on logistics globally. Whilst the project had no direct Covid-19 related issues at site, moving samples and our people has been problematic at times. We don’t anticipate any escalation in this.

Apart from these delays, we have made steady progress of the Cinovec Project with positive developments in the areas of our locked cycle testwork, permitting advancement and Measured Resource drilling programme. 

The Project has been significantly de-risked and at the time of this report is moving rapidly towards a final investment decision. 

The Project Company appointed SMS group, a German-based world-leading engineering firm, as the lead engineer for the minerals processing and lithium battery-grade chemicals production at Cinovec. This marks the beginning of the formal Front-End Engineering Design study as the major component of the ongoing Definitive Feasibility Study. This detailed engineering contract, along with advances in permitting and offtake discussions, moves us closer to the development of Europe’s largest hard rock lithium resource for the benefit of all stakeholders. 

FINANCIAL REVIEW

Total comprehensive income for the year attributable to equity holders was a loss of £0.14m (2020: profit of £7.82m). This decrease in profitability from the previous year of approximately £7.96m is mainly due to the reduced amount of realised and unrealised profits and losses for the year of approximately £1.2m (2020: £10.4m) relating to our share investment portfolio (listed financial investments) held during the period. Administrative expenses were up £0.36m from £1.44m to £1.80m, but foreign exchange gains were up £1.28m from a loss £0.82m to a gain of £0.46m.

Basic negative earnings per share was 0.102p (2020: positive earnings per share of 6.897p). 

The net assets of the Group at the end of the period were £22.15 million (2020: £22.09 million). This increase of approximately £0.06m reflects the losses and shares issued in the year.

Cadence Minerals plc (AIM/NEX: KDNC) is pleased to announce its interim results for the six months ended 30 June 2021.

Highlights

The focus of the Company since the beginning of the year has been its investment into the Amapa Iron Ore Project (‘Amapa Project’). This investment continues to be our top priority which has involved finalising the settlement agreement with the secured bank creditors and the advancement of the pre-feasibility study on the asset. The delays in crystallising our investment are a result of the secured bank creditors’ internal bureaucratic process, which is required when settling a loan of this value and under the terms agreed. Nonetheless we have continued to move the Amapa Project forward which has included, amongst other things, the iron ore stockpile shipments commencing in March and the pre-feasibility studies starting soon after that.

We are also in the process of reviewing our privately held assets, in particular, our early-stage lithium prospects in north Australia. We believe that these could be of some strategic importance given their proximity to the Finniss Project, owned by ASX listed Core Lithium.

During the period our equity investments have performed very well, primarily driven by the performance of European Metals Holdings.  Our equity investments generated a total income of £3.54 million resulting in profit before taxation of £2.84 million for the six months ended June 2021.

At a macro-economic level, the first half of 2021 saw the continued global recovery from the physical demand shock from COVID-19 experienced in 2020. According to the World Bank Group, the global economy is set to expand some 5.6% in 2021, its most robust post-recession pace in 80 years. However, this recovery is expected to be uneven and primarily reflects sharp rebounds in some major economies – most notably the United States – driven by substantial fiscal support. These ongoing monetary easing programmes have continued to support commodity prices and, in particular iron ore in the first half of this year. In addition, the accelerated transition and electrification of vehicles has increased lithium compound pricing, with the Benchmark Lithium Price Index up 85.3% on a year-to-date basis.

After the period end, we saw a softening of iron ore and other commodities (although lithium compound pricing remains strong). We believe this is primarily driven by China’s protectionist policies, including the possible imposition of steel quotas, crackdowns on speculative trading and the potential spread of the COVID-19 Delta variant. We expect the demand–supply balance to remain relatively tight for iron ore and lithium compounds in the medium term although there is still some residual uncertainty about how vaccine deployment and the policy and behavioural response to the newer, more infectious strains of COVID-19 will interact over the coming quarters.

As outlined in our annual report and accounts, Cadence operates an investment strategy that includes both 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 class below.

Private Investments (Active) 

The Amapa Iron Ore Project, Brazil

The Amapa Project is a large-scale open-pit iron ore mine with associated rail, port and beneficiation facilities that commenced operations in December 2007. In 2019, Cadence entered into a binding investment agreement to invest in and acquire up to 27% of the Amapa iron ore mine, beneficiation plant, railway and private port owned by DEV Mineração S.A (‘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 will invest US$6 million over two stages in a joint venture (‘JV’) company. The first stage is for 20% of the JV, the consideration for which is US$2.5 million. The second stage of investment is for a further 7% of the JV for a consideration of US$3.5 million. The investments are wholly contingent on DEV delivering several key preconditions. The funds for the first stage of investment are currently held in a judicial trust account of the commercial court of Sao Paulo.

All of our shareholders are aware that the remaining major precondition for Cadence to make its first stage investment in the Amapa Project requires DEV and the investors (Cadence and Indo Sino via our JV company) to reach a settlement agreement with the secured bank creditors. As of the date of the publication of these interims, the investors, DEV, and the secured bank creditors have agreed on the principal terms of the settlement agreement, which include the quantum, timing and all other material terms. The final settlement agreement is in near-final form, and the secured bank creditors have either had credit committee approval or are awaiting it.

We understand that this process has been frustrating, given that we agreed on the principal terms of the settlement in September 2020, but this matter has been outside of our control. The alternative to the current agreed (in principle) settlement would be hugely detrimental to the secured bank creditors, nonetheless. We have a high degree of confidence that we will execute a settlement agreement and will be announced as soon as it is completed.

As of the end of August 2021, DEV had shipped three cargoes totalling approximately 143,000 wet tonnes of 58% iron ore. DEV is also contracted to carry out logistical and shipping activities for third parties who have stockpiles held at DEV’s port, which it has been doing since it completed its third shipment in May of this year. These third-party stockpiles are separate from the 1.25 million tonnes of 58% iron ore (+/- 10%) owned by DEV. At this point, DEV intends to continue to carry out these shipping activities for these third parties. This is because current shipping rates have increased dramatically (US$80–90 per tonne), which is reducing the profitability of shipping DEV’s material. We believe that these rates should normalise over the medium term; therefore, the shipping of DEV’s material will recommence at a later stage.

The first portion of the net revenues has been used to pay historic small and employee creditors. Approximately US$6 million of the net revenues will be used to begin recommissioning studies on the Amapa Project and to start maintenance and monitoring of the current tailing dam facilities. The remaining net revenues will provide working capital for the operations and will be used as payment against the outstanding amount due to the secured bank creditors.

After the period end, DEV was permitted to export a further US$10 million (after the deductions of all logistical, regulatory, shipping and sales costs) of iron ore from its stockpiles situated at its port in Santana, Amapa, Brazil. This authority is in addition to the first permission granted to DEV on 10 February 2021, in which it was permitted to ship an initial US$10 million (net of costs) of iron ore.

Work on the started earlier in the year on the Pre-feasibility Study (‘PFS’). DEV has appointed internationally accredited engineering and consulting firms to carry out the engineering and conditioning study on the beneficiation and processing plant. These firms will also review the power supply options for the mine and plant, particularly the possibility of connecting to the grid network, enabling the mine and the plant to be predominantly powered by low-cost renewable energy. In addition, PFS work has started on the railway with the inspection of some 193km of rail and associated infrastructure. Both of these studies, once complete, will form part of the PFS. In the coming months, we expect DEV to appoint a consulting and engineering firm to start work on the port studies and conduct a geotechnical investigation of the mine.

As previously announced in May of this year, DEV began tailing dam maintenance. DEV has now employed a civil engineer and two geotechnical consulting firms to advance the work programme, including monitoring, geotechnical stability testing and statutory reporting. The end goal is to ensure that the current dams will be suitable for future operations amid Brazil’s more stringent regulatory environment.

In addition to the PFS work, DEV has worked with Companhia Docas de Santana (‘CDSA’) to increase loading capacity at the public port. Together with CDSA, DEV has established and tested a process at CDSA’s port in Santana for loading a 45,000-tonne vessel with iron ore at Pier Two from the berth side. This operation was the first of its kind and will allow shipment of the DEV stockpile at a faster rate if required.

Lithium Technologies Pty Ltd and Lithium Suppliers Pty Ltd (‘LT’ and ‘LS’)

Cadence owns 25.85% of LT and LS, which owns or has applied for three prospective hard rock lithium assets in Australia and six exploration applications in Argentina.

With the increase in lithium compound pricing, we have seen renewed interest in hard rock lithium projects in Australia. Our assets are prospective for pegmatites and especially our Litchfield exploration licence, which is adjacent to Core Lithium’s Finniss Project. A feasibility study was completed on the Finniss Project, which shows a pre-tax net present value of AU$384 million.

Given the progress being made at the Finniss Project, we will be reviewing the targeting and fieldwork studies carried out in 2019 to determine if it is worth pursuing further exploration in our joint venture areas.

Private Investments (Passive)

Our two passive private investments consist of our 30% equity stake in five lithium concessions that form part of the Sonora Lithium Project and our 30% interest in three mining leases, six exploration licences and two general-purpose licences that form part of the Yangibana Rare Earth Project. Our joint venture partners for these assets are Bacanora Lithium and Hastings Technology Metals, respectively. Further details on the Sonora Lithium and Yangibana Rare Earth Projects can be found here and here, respectively.

Although Hastings Technology Minerals has progressed the development of the Yangibana Rare Earth project, most of this has been in relation to its wholly owned assets, with the only a change being reassessment of our joint venture mineral resources and reserves occurring in July 2021. There was no material difference in the recalculation of our portion of the resource and reserves; an updated summary can be found on our website here.

In May 2021, Bacanora Lithium and Ganfeng International Trading (Shanghai) Limited (‘Ganfeng’) entered into an agreement regarding the terms of a possible cash offer by Ganfeng for the entire issued share capital of Bacanora Lithium, other than that which it already owns, for 67.5 pence per Bacanora Lithium share (the ‘Possible Offer’). The preconditions to the Possible Offer are progressing, with the latest update provided here on 29 July 2021. The Possible Offer remains subject to certain other preconditions, including the Due Diligence Precondition. The satisfaction or waiver of the Due Diligence Precondition is at the sole discretion of Ganfeng’ s board.

As far as the Company is aware, the Possible Offer has no direct effect on our joint ventures. Should the cash offer be successful, it will be highly encouraging for the development of the project, given Ganfeng’s involvement in the development of the asset to date, their extensive experience in the lithium market and the fact that their holding company is the world’s third-largest (and China’s largest) lithium compounds producer.

Public Equity

The public equity investment segment includes both 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 gain of £3.12 million and a realised gain of £0.42 million. The majority of these profits were derived from the sale of European Metals Holdings shares.

As of 30 June 2021, our public equity stakes consisted of the following:

European Metals Holdings Limited (‘European Metals’)

Cadence has held an investment in European Metals since June 2015. As of the period end, Cadence held approximately 9.7% of the Cinovec deposit in the Czech Republic through a direct holding in the share capital of European Metals that owns 100% of the exploration rights to the Cinovec lithium/tin deposit.

Cinovec hosts a globally significant hard rock lithium deposit with a total Indicated Mineral Resource of 372.4Mt at 0.45% Li2O and 0.04% Sn, and an Inferred Mineral Resource of 323.5Mt at 0.39% Li2O and 0.04% Sn, containing a combined 7.18 million tonnes of lithium carbonate equivalent and 263kt of tin (as reported on 28 November 2017). An initial Probable Ore Reserve of 34.5Mt at 0.65% Li2O and 0.09% Sn (as reported on 4 July 2017) had been declared to cover the first 20 years of mining. A projected output of 22,500tpa of lithium carbonate was reported on 11 July 2018.

The project has been significantly de-risked and is moving towards a final investment decision. European Metals has continued to progress the development of the assets across all the critical areas of the project. This includes further resource drilling to upgrade areas into measured resources and the completion of the locked cycle testing, which further supports the project’s credentials to produce battery-grade lithium carbonate and convert it to lithium hydroxide.

Trading Portfolio Public Equity (Passive)

Cadence’s passive investments are typically direct purchases of listed mining equities but may include other investment structures. The aim is to make capital gains in the short to medium term. Investments are considered individually based on a variety of criteria. Investments are typically traded on the TSX, ASX, AIM or LSE. During the period, we invested in a broader range of publicly listed investments and retained our stake in MacArthur Minerals Limited. Our trading portfolio generated a realised gain of £0.02 million over the period. A summary of our holdings is detailed in the table above.

Given that none of our trading portfolio investments represent more than 10% of our net assets and are below the relevant reporting thresholds in the applicable jurisdiction, we have determined that going forward, we will not republish regulatory announcements associated with these investments unless, of course, they become material. We will report on the performance of the trading portfolio investments via our annual and interim financial statements.

Financial Results

During the period, the Company made a profit before taxation of £2.84 million (six months ended 30 June 2020: loss of £1.40 million, the year ended 31 December 2020: profit of £7.82 million). There was a weighted basic profit per share of 1.914p (six months ended 30 June 2020: loss of 1.521p, the year ended 31 December 2020: profit of 6.705p).

The total assets of the Company increased from £22.61 million as of 31 December 2020 to £25.37 million. Borrowings were reduced from £0.22 million at 31 December 2020 to zero at 30 June 2021.

During the period, our net cash outflow from operating activities was £1.15 million, and our net cash position increased by £0.78 million to £1.39 million.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

For further information:

CADENCE MINERALS PLC

STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2021

CADENCE MINERALS PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2021

CADENCE MINERALS PLC

STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2021

CADENCE MINERALS PLC

CONSOLIDATED CASH FLOW STATEMENT

FOR THE PERIOD 30 JUNE 2021

NOTES TO THE INTERIM REPORT

FOR THE PERIOD ENDED 30 JUNE 2021

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 2020 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 2020 financial statements, which are prepared in accordance with International Financial Reporting Standards as adopted by the European Union (adopted IFRSs).

PRIOR PERIOD RESTATEMENT

Cadence Minerals plc is an investment entity and its interests are held exclusively with a view to subsequent resale. Historically the Company adopted a consolidation policy which didn’t reflect the nature, purpose and cashflows of the entity. This policy has been amended and the periods prior to 31 December 2020 have been restated in recognition of the change in accounting policy in line with IAS 8.

All investments preciously wrongly classified have been reclassified as Financial Assets held at Fair Value through Profit and Loss (“FVPTL”). The prior year accounts have been restated as a result. Additionally, deposits have been reclassified from cash and cash equivalent to other debtors as it is not considered to be readily available. Full details of the restatement are included in the financial statements for the year ended 31 December 2020.

GOING CONCERN

The Directors have prepared cash flow forecasts for the Period ending 30 September 2022. 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 PROFIT PER SHARE

The calculation of the loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the Period.

4 SHARE CAPITAL