Cadence Minerals plc (AIM: KDNC) — Investment Research Note

Executive summary

Cadence Minerals is an AIM-listed mining investment company whose dominant value driver is a 35.7% stake in the Amapá Iron Ore Project in Brazil — a previously-operating mine, rail and port complex now being re-developed via a joint venture, supported by passive interests in the Sonora Lithium Project (Mexico, expropriated and in arbitration) and a much-shrunken public equity portfolio. Across the period covered the trajectory has been: divestment of public holdings to recycle capital into Amapá; completion of an updated PFS in Dec 2024 showing US$1.97bn post-tax NPV at 5.5 Mtpa DR-grade; and a Sept 2025 pivot to a staged "Azteca" plant restart funded by an offtake prepay 2025-09 interim. The single most important point for valuation is that the headline NPV is unrisked, pre-financing and several years from cashflow, while Cadence carries near-zero cash (£3k at 30 Jun 2025) and will need either an offtake partner, a JV/sale, or further dilutive equity to crystallise any of it.

Fair value estimate

Methodology: risked attributable NAV based on the December 2024 PFS, cross-checked against the previous transaction valuation (Anglo American carrying value).

Key assumptions:

• 100% post-tax NPV (10%) for the DR-grade case = US$1,977m 2025-06 annual, 2025-09 interim
• Cadence attributable: 35.7% × US$1,977m = ~US$706m = ~£558m at 0.79 USD/GBP
• Pre-production capex still required (US$343–377m at 100%); environmental licences (Mine LI, Rail LI, Port LI) still outstanding; secured-bank settlement not finalised; substantial future dilution likely (current share count already up 64% YoY)
• Sonora Lithium: assume zero recoverable value pending ICSID/BIT arbitration outcome
• Cash, listed investments and other assets: ~£0–1m residual after debt

I apply a risk weighting band of 4–10% of the unrisked attributable NPV to reflect (i) financing not yet secured, (ii) licensing still in flight, (iii) time-to-cashflow (3+ years on full-scale, months on Azteca pilot), (iv) future equity dilution, (v) commodity risk:

• Low case (4%): £22m
• Mid case (7%): £39m
• High case (10%): £56m

With ~296m shares in issue (pre any dilution), this gives:

Fair value range: 7p – 19p per share, midpoint ~13p Implied market cap range: £22m – £56m, midpoint ~£39m

vs. current market cap of £22.2m (7.5p/share). Upside to midpoint **+75%**, range from flat to +150%.

Sector context

Confirmed sector classification: Basic Materials / Basic Resources, ICB sub-sector mining (iron ore). Profile vs typical sector peers: significantly below typical large-cap iron ore peers (Vale, Rio Tinto, BHP, Fortescue) which are producers with billion-dollar EBITDA; the relevant peer set is junior single-asset iron ore developers — Macarthur Minerals (a Cadence holding, ASX), Strike Resources, Champion Iron at an earlier stage, and Ferrexpo for the DR-grade angle. Cadence's profile is high-risk, pre-revenue, low-capitalisation development play, atypical even within juniors because it sits one step removed (an equity investor in the JV rather than the operator).

Investment thesis (3 bullets)

1. Deeply discounted optionality on a real, previously-operating asset. The Amapá mine produced 6.1Mt in 2012 and Anglo American carried its 70% stake at US$462m post-impairment 2025-06 annual. Cadence's 35.7% of a US$1.97bn NPV implies an unrisked attributable value of c. £558m vs current market cap of £22.2m — even at a 5% risk weighting the central case implies a meaningful re-rating window 2025-09 interim.
2. A near-term cashflow catalyst via the Azteca staged restart. Heads of Terms signed for a US$4.6m prepayment offtake facility with a global trading partner; Azteca is targeted at ~380,000 tpa of 65% Fe concentrate with only US$3.5m pre-production capex and Cadence contributing just 10–15% — projected ~70% IRR on Cadence's share, with first shipments months after licence approval 2025-09 interim.
3. DR-grade product positioning into a structurally tight decarbonisation market. 2024 testwork confirmed 67.5% Fe concentrate with combined SiO₂+Al₂O₃ <1.5%, putting Amapá in the lower quartile of the global cost curve at C1 FOB US$27.28/dmt; DR-grade premiums of US$15–45/t over benchmark were observed in 2024 with global DR-demand projected to rise more than fivefold by 2050 2025-06 annual.

Key risks (3 bullets)

1. Liquidity and dilution risk are acute. Cash at 30 Jun 2025 was £3,000 with £578k in current borrowings; share count rose from 180.9m (Dec 2023) to 295.97m (Dec 2024) — a 64% increase — and post-period 14.72m options were granted at 2p. The 2025 AGM saw 38% voting against the directors' authority to allot, reflecting shareholder fatigue 2025-08 AGM, 2025-09 interim.
2. Licensing, financing and execution are all still pending on Amapá. Mine LI, Rail LI and especially Port LI (delayed by the historic geotechnical failure) are not yet granted; the secured-bank creditor settlement remains unfinalised; the full 5.5Mtpa requires US$377m of capex that does not yet have a financing partner 2025-09 interim, 2025-06 annual.
3. The Sonora lithium investment is effectively expropriated. Mexican authorities cancelled the concessions in Aug 2023; Cadence carries £3.9m of REM Mexico loans and £nil concession value is recoverable absent successful BIT arbitration which could take years 2025-06 annual, 2024-06 annual.

Operating leverage

At current scale Cadence has essentially no revenue and a ~£1m/year corporate cost base 2025-06 annual: £1.099m other admin in FY24; the underlying Amapá project, when in production, has classic high-fixed-cost mining economics — at full 5.5Mtpa the PFS shows C1 cash costs of US$33.5/dmt FOB vs realised prices ~US$100–130/t, giving an EBITDA margin north of 70% and forecast free cash flow of US$342m/year on the 100% project 2025-09 interim. The implied operating leverage is enormous at the project level — but Cadence the holding company doesn't have direct operational leverage; it has an equity option on the project's leverage. The Azteca staged pilot, at ~380ktpa, is the first observable inflection point: if it delivers on the ~US$32m of free cash flow over three years quoted in the offtake heads of terms, that alone would equal ~1.5× the current market cap. The big leverage event is full-scale construction, which is 3+ years and a major financing event away.

Value-trap signals

• Repeated equity raises at discounts. April 2024 placing at 3p (vs 5.25p close, ~43% discount); December 2024 issuance at 1.5p; ongoing dilution.
• Persistent losses with no operating revenue. Pre-tax losses of £3.0m (2023), £3.3m (2024), £0.8m H1 2025 — sustained by selling listed holdings.
• Going concern dependent on discretionary cost cuts. Cash of £3k at H1 2025 with going-concern assertion based on ability to cut costs 2025-09 interim.
• Long gap between PFS NPV and market cap, persisting across multiple PFS updates. The 2023 PFS, 2024 base-case PFS and 2024 DR-grade PFS have each implied multi-£100m attributable NAV against a sub-£25m market cap for years — the market is consistently refusing to credit the headline number.
• Expropriation of Sonora. Mexican lithium concession cancellation 2025-06 annual.
• AGM dissent on share allotment authority (37.7% against in 2025) 2025-08 AGM.

These signals collectively justify a substantial valuation discount but are not, in my view, evidence of a permanent trap — the underlying Amapá asset is genuine, previously operated, and has a documented cost base.

Earnings vs. expectations

Cadence is pre-revenue and AIM-listed with no analyst consensus visible in the filings, so traditional beat/meet/miss analysis isn't applicable. What is observable is operational milestone slippage: the 2024 annual report acknowledged the LIs "initially anticipated by year-end 2024" were not granted, with SEMA requesting supplementary studies 2025-06 annual; the iron ore stockpile settlement first agreed in principle in 2020 was not finalised by H1 2025 2025-09 interim; the Definitive Feasibility Study originally signalled for 2024 has not appeared. The pattern across the 5-year filing set is consistent delay against management timelines, while underlying project economics have improved.

Conviction

Conviction: 2 (low)

Factors anchoring the call: (1) the underlying PFS document is real, externally validated and the asset previously produced 6.1Mt commercially, giving a defensible NAV anchor; (2) cross-checks against historic Anglo American carrying values (US$462m for 70%) corroborate that the asset has substantial intrinsic worth; (3) cost base is documented in the lowest quartile globally.

Factors limiting it: (1) the gap between unrisked NAV and any plausible risked NAV is enormous and the appropriate risk weighting (4–10%) is largely a judgement call; (2) the dilution path between today and any cashflow event is unknown and could materially erode per-share value; (3) execution track record on stated timelines is poor.

Driver scoring rationale

• AI beneficiary: 3 — iron ore producer with no plausible AI revenue channel.
• Operating leverage: 45 — high theoretical leverage at the project level but pre-revenue at parent level; no current operating profit to leverage.
• Earnings surprise trend: 50 — pre-revenue, no consensus, "not enough data" 50.
• Cyclicality: 85 — iron ore is a textbook cyclical commodity.
• Moat: 25 — mining concession + previous infrastructure is a modest barrier but no durable competitive advantage.
• Leverage: 25 — small absolute net debt (£578k borrowings vs £16.4m equity) but liquidity-constrained; net cash position essentially zero.
• Earnings quality: 30 — earnings dominated by unrealised/realised gains and losses on financial investments, fair-value movements through P&L, with negligible cash generation.
• Management quality: 38 — long-tenured but persistent timeline slippage, high director cash compensation (£460k in 2024) against repeated losses, repeated dilutive raises at deep discounts.
• Growth momentum: 30 — project advancing operationally (Azteca prepay, PFS upgrade) but no revenue growth to speak of.

Overall score rationale

This is an iron-ore developer with no AI receiver exposure, no current operating leverage to AI cycle revenue surprises, and fragile liquidity that fails the "acceptable downside protection" bar despite a plausibly cheap risked-NAV story. The valuation discipline pillar is partially satisfied (current market cap is below most reasonable risked NAVs) but the other two pillars are absent. Score: 120.