Cadence Minerals Plc

("Cadence Minerals" or "Cadence")

Results for the year ended 31 December 2016

 

The Company is pleased to announce its final results for the year ended 31 December 2016. A copy of these results will be made available on the Company's website from today.

 

For further information please contact
Cadence Minerals plc	+44 (0) 207 440 0647
Andrew Suckling
Kiran Morzaria
WH Ireland Limited (NOMAD & Broker)	+44 (0) 207 220 1666
James Joyce
James Bavister
Square1 Consulting	+44 (0) 207 929 5599
David Bick
Brian Alexander

 

 

chairman's statement

 

STRONG ASSET GROWTH AND RETURN ON EQUITY

 

The lithium compound market continued to perform extremely well in 2016 and with medium-term supply requirements remaining unfulfilled, our assets also rose to the challenge. 

 

We believe that our two primary assets in Mexico and the Czech Republic will become important sources of battery-grade lithium carbonate from 2019 onward. Our two main investments and joint ventures are targeting to produce, in aggregate, some 55,000 tonnes of battery grade lithium carbonate, which based on analysts' projections, could represent a very significant 7% to 10% of the world's supply in 2025.

 

Our focus in 2016 was to continue our investment strategy and vision of identifying, investing in and taking an active role in low-cost, large and scalable critical metal deposits. The Group's current investments have borne out our strategy and delivered both excellent market returns and fundamental progress at the asset level.

 

Our investment in the Sonora Lithium project (both directly and indirectly through our holding in Bacanora Minerals Ltd and our joint venture with them) continued to make excellent progress both during the year and subsequent to the year-end with the publication of a highly positive pre-feasibility study in 2016. 

 

Further, in early 2017 the company signed a strategic agreement, inclusive of up to a 100% off-take for lithium carbonate with Hanwa, a major trading house based in Japan. The Sonora Lithium project now has a sound base from which to embark on the next stages of development, including the completion of its bankable feasibility study and securing the capital financing necessary to commence construction in 2018.

 

The Cinovec Lithium Project, via our significant holding in European Metals Holdings, also continued to develop at a rapid pace, with a 420% upgrade in resources announced during the year and a pre-feasibility study 3published in April 2017.  This study confirmed our analysis of the project in 2015, in that it would represent a low-cost and potentially significant producer of battery grade lithium carbonate. One of the significant positive aspects of Cinovec is the potential tin credits from any mining operation would assist greatly in keeping the unit costs of lithium in the lowest quartile of global producers.

 

The fundamental progress made with these assets, along with our investment in Macarthur Minerals Ltd and Auroch Minerals Ltd in Australia, has delivered absolute returns in excess of 104%. During the year, our listed investments delivered an operating profit of £2.8 million compared to £0.2 million in 2015.

 

Investment activity has also continued apace, with a further £7.85 million invested over the period. These funds were used to increase our exposure to both Bacanora Minerals Ltd (16.06% equity interest), European Metals Holdings Ltd (20.76% equity interest), and Macarthur Minerals Ltd (20.3% equity interest). In addition, we also further increased our exposure to lithium exploration with the purchase of a 7.7% stake in Auroch Minerals Ltd, which has exploration assets in Portugal and Namibia.

 

Our strategy for delivering long-term material value to shareholders will stay focused on three things: First, to support existing projects through to production. Second, to identify new strategic investments. Principally, these will be further lithium exploration assets demonstrating a high probability of entering into commercial production. Third, to evaluate the investment potential in other key metals that are widely used in the rapidly expanding energy storage sector, such as cobalt, copper and nickel.

 

In this regard, we are focusing this year on acquiring stakes in assets that are currently unlisted but fit our investment criteria, which to date has delivered excellent returns. In this way we will provide our shareholders access to assets that have the same fundamentals as our previous investments but with potentially higher returns.

 

We continue to view the medium and long term prospects for the Company with confidence.

 

The directors would like to take this opportunity to thank our shareholders, staff and consultants for their continued support.

 

 

Andrew Suckling

Executive Chairman

30 May 2017

 

 

strategic report

 

Our focus in 2016 was to continue our investment strategy, that is, to identify, invest and play an active role in the development and progress in assets and companies that have unique access to projects that have the right chemistry,  are low cost and represent a value investment.

 

Cadence typically invests at the early stage of the resource development cycle. This can be as early as target delineation and up to scoping study level. The risk associated with investing in any resource projects at an early stage is high particularly within the lithium sector, which is not commoditised and the success or failure of a project is highly dependent on the metallurgical risks.

 

Our approach to mitigate this risk is to obtain a deep fundamental understanding of the resource, its chemistry and management team. By doing so we can eliminate the many potential investments that we review during the year and fund projects that we believe will come to production and deliver value to our shareholders. Importantly we also take an active approach to our investments by either being part of the management team or, if not, assisting incumbent management in their endeavours.

 

Table 1: Absolute Return Figures

 

	31/12/2015	31/12/2016	28/04/2016
Mark to Market Equity Value (GB£ ,000)	13,994	24,152	36,303
Absolute Return on Equity (%)	42%	36%	104%

 

LITHIUM MARKET REVIEW

 

During 2016, we continued to see further supply constraints in the lithium supply markets, even with the addition of several new projects providing additional supply. The result was continued upward pressure on seaborne lithium carbonate prices, with battery grade contracts at around US$12,000 per tonne of battery-grade lithium carbonate.

 

Although the lithium market is opaque, reports have suggested that lithium demand increased 15% year-on-year to 212kt Lithium Carbonate Equivalent ("LCE") in 2016. 2016 global sales of Electric Vehicles (EVs) and Plug-in Hybrids (PHEVs) were around 780,000 vehicles. Global supply has responded to this increased demand, with year-on-year production growth from Chile (mainly SQM), Argentina (ramp up of Orocobre) and China (high-cost domestic feedstock production incentivised into the market). In 2016 Greenbushes, the world's largest hard rock operation, exports were close to 70kt LCE, 20% higher than 2015 export volumes. This incremental supply brought the market closer towards balance in the second half of 2016, leading to battery-grade lithium compound prices in China falling c.31% by the end of the year. In contrast, seaborne lithium prices have continued to increase, reducing the pricing spread between China and the rest of the world.

 

The key drivers of the continued growth in the market will continue to be EVs. The larger catalyst for global mass- market uptakes is EV technology in China. Morning Star has forecasted EV penetration to surge from less than 1% of global auto sales in 2015 to 10% in 2025, well ahead of the market view for only 4%-6% penetration by 2025. They forecast 16% annual lithium demand growth over the next decade, faster than we've witnessed for almost any major commodity over the past century. They project 2025 lithium demand at 775,000 tonnes, well above the consensus outlook for 400,000 - 600,000 tonnes.

 

Cadence still maintains its belief that lithium prices will remain strong and anticipates that this pattern will continue for the foreseeable future. We believe that the assets that we have invested in will form part of the medium-term lithium supply chain from 2019 onwards.

 

INVESTMENT REVIEW

 

Bacanora Minerals Ltd ("Bacanora")

Cadence holds an interest in Bacanora through a 16.06% (30/05/2017) direct equity holding, making Cadence the single largest shareholder of Bacanora and a 30% stake in the joint venture interests in each of Mexalit S.A. de CV ("Mexalit") and Megalit S.A. de CV ("Megalit"), Which form part of the Sonora Lithium Project. Bacanora is a Canadian and London-listed minerals explorer (TSX-V: BCN and AIM: BCN).

 

Bacanora's has two key projects under development. The first is the Sonora Lithium Project in Northern Mexico, which consists of ten mining concession areas covering approximately 100 thousand hectares in the northeast of Sonora State. The second is the Zinnwald Lithium Projects in southern Saxony, Germany, which Bacanora has agreed to acquire 50% for EUR 5 million.

 

Sonora Lithium Project

The Sonora Lithium project continued to progress up the development curve, achieving several critical milestones during the year and subsequent to the year-end.

 

First and foremost, Bacanora published its preliminary feasibility study ("PFS") in March 2016. The PFS has an initial targeted production of 17,500 tonnes (t) of lithium carbonate (Li₂CO₃) per annum, expanding to 35,000 t of Li₂CO₃ per annum two years later. The PFS has a pre-tax NPV of US$776 million and an IRR of 29%. Bacanora has commenced the Bankable Feasibility Study ("BFS"), which is scheduled for completion in Q3 2017.

 

The highlights of the Sonora PFS are summarised below:

 

·      Phase 1: 17,500 tonnes per year of battery-grade Li₂CO₃, for the first two years

·      Phase 2: Expansion to 35,000 tonnes Li₂CO₃ per year

·      Potential to produce up to 50,000 tonnes per year of K₂SO₄ in the third year, for sale to the fertiliser industry

·      Estimated Project pre-tax IRR of 29%; NPV of US$776M, (at an 8% discount rate); and simple payback of five years, based on a flat US$6,000/t for battery grade lithium carbonate over the Life Of Mine

·      Average annual earnings before interest, taxes, depreciation and amortisation estimated at US$134M per annum

·      Stage 1 capital cost estimate of US$240M includes processing plant, on and off-site infrastructure, Tailings Management Facility construction, and general administration costs

 

The PFS mine plan currently has some 16% of the plant feed being mined from the 30% joint venture areas owned by Mexalit.

 

Both the equity stake in Bacanora and our ownership in the Mexalit joint venture could represent a substantial return for Cadence in the form of cash flow from the Sonora Lithium Project. To understand the possible outcomes, we have varied the operational costs and revenue per tonne of lithium carbonate to derive a matrix of potential total NPV's (US$ millions) from the joint venture and our 16.06% equity stake in Bacanora*.

 

Table 2:  Matrix of potential total NPV returns from Cadence's joint venture and indirect equity stakes in the Sonora Lithium Project

 

		+99.5 % Lithium Carbonate Price US$
		6,000	7,000	8,000	9,000
US$ / t Lithium Carbonate	3,000	140	203	265	328
	3,500	108	171	233	296
	4,000	76	139	201	264
	4,500	44	107	169	232

 

* Company estimates are based on discounted cash flows from both equity and joint venture or direct project interests. The Company has used pre-feasibility or scoping studies in the public domain and has estimated the future cash flows that it could receive assuming all free cash flow is distributed to equity and that the project is entirely equity funded with Cadence retaining its interest and contributing on a pro rata basis.

 

On 23 November 2016 Cadence & Bacanora announced that the financing condition in the conditional lithium hydroxide off-take agreement previously announced on 28 August 2015 had not been met under the terms of the agreement. The Company advised that it had extensive discussions with the customer as to the feasibility of securing project specific financing pursuant to the terms and conditions of  the agreement, that those discussions  have  now  concluded, and therefore further efforts discontinuing further efforts to secure project specific financing pursuant to the agreement.

 

Subsequent to this, and after the year end, Bacanoa entered into an offtake agreement for up to 100% of the battery grade lithium carbonate with Hanwa Co., LTD ("Hanwa"). Hanwa is a leading Japan-based global trading company and one of the larger trades of battery chemicals in the Asian region, with reported net sales of more the Y1,500 million in 2016. The off-take agreement formed part of a larger strategic partnership with Hanwa. In addition to the 70%- 100% off-take agreement Hanwa invested approximately £10.2 million to acquire an initial 10% interest in Bacanora and has the option to increase its equity interest in Bacanora to 19.9%.

 

The strategic partnership, we believe, is critical to the ongoing development of the Sonora Lithium project as it will provide a funding platform for the project and will aid in securing the long-term debt funding.  Moreover, validates the quality of the battery grade (+99.5%) lithium carbonate product produced from the Sonora Lithium project.

 

In the coming year, we expect Bacanora to focus on the BFS which is scheduled for publication in Q3 2017. We also expect significant progress to be made with, banks, debt providers and strategic investors to develop a project financing strategy. If this is successful Bacanora anticipates the start of construction in H1 of 2018 with an 18 month build period.

 

Zinnwald Lithium Project

On 21 February 2017 Bacanora announced the acquisition of a 50% interest in, and joint operational control of, the Zinnwald Lithium Project ("Zinnwald") in southern Saxony, Germany from SolarWorld AG ("SolarWorld"). This was for a cash consideration of EUR5 million and the completion of a Feasibility Study ("FS"). The agreement also included an option for Bacanora to acquire the outstanding 50% held by SolarWorld within a 24-month period for EUR30 million. Zinnwald, which reportedly produced lithium carbonate in the 1950s, is in a granite hosted Sn/W/Li belt that has been mined historically for tin, tungsten and lithium. The project benefits from excellent access to the rapidly growing market for lithium in Germany which is being driven by the automotive, renewable energy storage and chemicals industries. Bacanora will earn 50% of the project. This project is adjacent to and a continuation of the Cinovec lithium project in the Czech Republic  

The FS has begun, with bulk ore to be carried out during the summer to provide samples for metallurgical test work for inclusion in the flowsheet.  Additionally, an infill drilling programme is planned for late 2017 to upgrade the existing resource model in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects.  The drilling will test for a number of potential by-products including tin and tungsten.  The 2014 resource estimate was reported in accordance with the Pan European Code for Reporting of Exploration Results, Mineral Resources and Reserves, and contained circa 700 Kt of LCE.

Details of REM's ownership

REM owns a direct interest of 16.06% of Bacanora. The Sonora Lithium Project is comprised of the following lithium properties:

·      La Ventana, La Ventana 1, and Megalit concessions, which are 100 percent owned by Minera Sonora Borax S.A. de C.V.("MSB"), a wholly-owned subsidiary of Bacanora; REM, through its direct interest of 16.06% of Bacanora, has an indirect interest in these concessions of 16.06%.

·      El Sauz, El Sauz 1, El Sauz 2, Fleur and Fleur 1 concessions, which are held by Mexilit S.A. de C.V. ("Mexilit"). REM has a 30% direct interest in Mexalit through its Joint Venture with Bacanora, and when combined with REM's direct interest of 16.06% in Bacanora, has a total economic interest in Mexalit of 41.24%.

·      The Buenavista, and San Gabriel concessions, which are held by Megalit S.A de C.V ("Megalit"). REM has a 30% direct interest in Megalit through its Joint Venture with Bacanora, and when combined with REM's direct interest of 16.06% in Bacanora, has a total economic interest in Megalit of 41.24%

 

European Metals Holdings Limited (European Metals)

In June 2015 Cadence acquired an initial strategic interest in the largest lithium deposit in Europe. REM has subsequently increased its holding to 20.76% in the Cinovec deposit in the Czech Republic through a direct holding in the share capital of European Metals Holdings Limited (ASX code: EMH) that owns 100 per cent of the exploration rights to the Cinovec lithium/tin deposit. The Cinovec lithium and tin deposit is located in the Krusne Hory mountain range. The deposit that straddles the border between Germany and the Czech Republic and in Germany, it is known as the Zinnwald deposit (50% owned by Bacanora). The district has an extensive mining history, with various metals having been extracted since the 14th Century.

 

Summary of Activities

European Metals made significant progress during 2016.  With the Company's efforts focusing on the completion of a PFS in April 2017. This primarily involved further drilling over the project as well as extensive metallurgical work to determine and test flow sheets for the production of battery grade LCE.

 

The initial drilling programme began in Dec 2015 and ended in April 2016 with some 5,000 metres of drilling. This data was used to calculate the updated mineral resource published in May 2016. As second 7,500-metre drill programme began in June 2016 which targeted higher grade, shallower lithium bearing zones and also had the aim of converting a significant portion of the inferred lithium and tin resource into an indicated resource.

 

The results from this programme led to a 420% increase in the indicates Mineral Resources, which when combined with the Inferred Mineral Resources, results in a total resource of an estimated 6.46 Mt of LCE. Highlights from the Mineral Resource Estimate include:

 

·    Lithium Indicated Resource increased 420% to 2.6 Mt LCE, contained in 232.8 Mt @ 0.45% Li₂O (0.1% Li cutoff)

·    Lithium total resource increased 11.8% to 6.46 Mt LCE, contained in 606.8 Mt @ 0.43% Li₂O (0.1% Li cutoff)

·    Tin Indicated Resource increased by 64% to 28.6 Mt @ 0.23% Sn, 0.54% Li2O (0.1% Sn cutoff) for 65.8 kt Sn, 0.38 Mt LCE

·    Lithium exploration target remains 350 to 450 Mt @ 0.39% to 0.47% for 3.4 Mt to 5.3 Mt of LCE

 

In addition to the drilling programme extensive metallurgical test work was carried out over the year which resulted in the successful manufacture of >99.5% pure lithium carbonate using an industry proven, sodium sulphate roast-based flow-sheet from mica-concentrate from the Cinovec Project. The roasting flow-sheet reflected a simplified version of the well-proven technology that converts spodumene concentrate to lithium carbonate. Numerous lithium carbonate plants currently employ this technology internationally.

 

Subsequent to the year-end European Metals released a PFS on the Cinovec project, which confirmed the potential significance of the Cinovec project, highlights of the PFS include:

 

·    Net overall cost of production -	·    US$3,483 /tonne Li2CO3
·    Net Present Value (NPV) -	·    US$540 M (post tax, 8%)
·    Internal Rate of Return (IRR) -	·    21 % (post tax)
·    Total Capital Cost -	·    US$393 M
·    Annual production of Battery Grade Lithium Carbonate -	·    20,800 tonnes

 

European Metals is no progressing it permits, environmental studies and BFS and we look forward to 2017 and the progress that will be made to bring this asset into production.

 

Details of Cadence's ownership

Cadence owns a direct interest of 20.76% of European Metals.

 

Yangibana Project, Australia

Since December 2011 REM has owned a 30% interest in the Yangibana rare earth project situated in the Gascoyne region of Western Australia. REM's interest is free carried up to the commencement of the bankable feasibility study on Yangibana.

 

Summary of Activities

Hastings Technology Metals Limited ("Hastings") is the manager of the Project and holds a 70% interest. Hastings continued to explore and develop the Yangibana project during the year.

 

The most significant development during the year was the publication of the PFS, which included the 30% joint venture with extensive drilling and pre-feasibility work.

 

In April 2016 Hastings published its pre-feasibility study, which showed a pre-tax NPV of US$700 - US$750 M at an 8% discount rate and a 40% internal rate of return. The PFS was not specific as to the total quantum that was to be mined from the joint venture areas. However, the Company has used the mining inventory defined in the mine plan to assess the potential NPV to Cadence under the joint venture.

 

Subsequent to the publication of the PFS, Hastings has continued to progress the project, with further drilling, target delineation on the project as a whole. In May 2017 Hastings began its final DFS drilling programme, with the primary objective of increasing indicates resources to support a 10-year mine plan. In addition, Hastings successfully tested the hydrometallurgical flowsheets and produced 50kg high purity Mixed Rare Earth Carbonate for marketing purposes.

 

Macarthur Minerals Limited ("Macarthur")

In March 2016 Cadence Minerals made a strategic investment in Macarthur (TSX-V: MMS). During the year, it further increased its position to 16.58% by exercising its warrants. Subsequent to the year-end Cadence exercised its remaining warrants and increased its position to 20.3%.

 

Summary of Activities

Macarthur has made progress on several fronts during the year.

 

Australian Lithium Assets

Within the lithium space, Macarthur has applied for a total of 1,449 square kilometres in the Pilbara region of Western Australia. Pilbara lithium acreage is adjacent to and covers similar geological settings to the "world class" Pilgangoora lithium deposits, which host the advanced lithium projects of ASX listed companies, Pilbara Minerals Limited and Altura Mining Limited. Macarthur has reported that initial reconnaissance across a fraction of the Pilbara lithium acreage has been very encouraging, justifying continued assessment.

 

During the year, Macarthur entered into three Memorandum of Understandings. The first with an ASX listed company for a farm-in and joint venture agreement for rights to lithium on their Sulphur Springs and Whim Creek Projects in the Pilbara, which is contiguous with some of Macarthur's lithium acreage. The second with a Canadian lithium company for a farm-in to Macarthur lithium acreage at Ravensthorpe for a minimum expenditure of A$2 million to earn a 51% interest. The last was covering an area of 191 square kilometres in the Yalgoo region of Western Australia. The acreage on which rights to lithium are acquired is in proximity to Macarthur's existing Edah Hill lithium acreage and consists of granted exploration licenses allowing immediate exploration for lithium.

 

Stonewall Project

On October 21, 2016, the Macarthur acquired the Stonewall Project located in both the Lida and Stonewall Flat Valleys, in southern Nevada. The Stonewall Project area is within 50 km of the Clayton Valley and has some similar geologic features the Clayton Valley, which hosts North America's only producing lithium mine, Albemarle's Silver Peak Lithium Mine.

 

The Stonewall Project is strategically located in the Nevada lithium supply hub, 306 kilometres (191 miles) southeast of Tesla's new Gigafactory and is located in the mining friendly Nye and Esmeralda Counties of Nevada and is serviced by excellent infrastructure with access to power, water, labour and is bisected by the Veterans Memorial Highway Number 95. The regional climate also favours natural and inexpensive evaporation for brine concentration and allows year-round work.

 

Lithium has been located at Stonewall Project from a shallow auger drilling program conducted as part of due diligence, for the acquisition of the Stonewall Project. An initial shallow auger drilling program on the Stonewall Project for the purposes of collecting soil and brine samples for lithium was conducted. All holes contained lithium with sediment assays ranging from 34.6 parts per million ("ppm") lithium ("Li") and up to 145.5 ppm Li.

 

On November 4, 2016, the Company completed staking an additional 360 claims covering approximately 6,975 acres (28.22 square kilometres) surrounding its Stonewall Lithium Project, increasing the Company's footprint in the Lida and Stonewall Flat Valleys to a total of approximately 12,019 acres (48.64 square kilometres) covering almost all of the playa areas (i.e. 'dry lake bed') in both of the valleys.

 

Macarthur Iron Ore Projects

Macarthur retains its two iron ore projects in Western Australia; the Ularring hematite project (Indicated 54.46 million tonnes @ 47.2% Fe, Inferred 25.99 million tonnes @ 45.4% Fe - Pre-Feasibility Study) and the Moonshine magnetite project (1.3 billion tonnes @ 30.1% Fe - Preliminary Economic Assessment). We previously received approval to develop an iron ore mine for the Ularring project.

 

Subsequent to the year-end Macarthur announce that it has entered into a non-exclusive mandate with the Tulshyan Group to raise up to A$200 million with an initial tranche of A$50 million to develop the Company's Ularring hematite iron ore project located in Western Australia.

 

Macarthur Corporate Update

Subsequent to the year-end Macarthur announced that it intended to list its Iron Ore and Lithium assets located in Australia on the Australian stock exchange via an IPO. The prospectus was lodged in March 2017 and was for the issue of 50 million shares in Macarthur Australia at an issue price of A$0.20 per share to raise A$10 million. The minimum raise is for 25 million shares for A$5 million. Lodgement of the prospectus with ASIC and ASX for listing Macarthur Australia on the ASX follows the successful, Pre-IPO raising for A$1.4 million. Funds raised in the IPO will allow Macarthur Australia to significantly advance its iron ore and lithium projects.

Prior to the IPO, Macarthur Minerals has been issued 125 million shares or approximately 90% of Macarthur Australia for consideration for the sale of its subsidiaries, Macarthur Iron Ore Pty Ltd ("MIO") and Macarthur Lithium Pty Ltd ("MLi") to Macarthur Australia. MIO and MLi, respectively own the Australian iron ore and 'hard rock' lithium projects. Pre-IPO investors have been issued approximately 13 million shares or 9% of Macarthur Australia for A$1.5 million. Pre-IPO Macarthur Australia has a total of approximately 138 million shares on issue and on listing will have between 189  and  164 million shares on issue for a raise of up to A$10 million and a minimum of A$5 million. Post listing, Macarthur Minerals will retain between approximately 76% and 66% of Macarthur Australia.

 

Auroch Minerals Ltd ("Auroch")

In December 2016 Cadence took a 7.7% stake in Auroch. Auroch has a strong financial position with some A$ 8 million in cash and receivables. Auroch is an Australian ASX listed company which is currently focusing on the exploration of two key assets.

 

The first is a joint venture to earn in 75% of the Alcoutim Project a significant Cu-Zn-Pb-Au-Ag opportunity in south-eastern Portugal located immediately along strike from the supergiant Neves Corvo Mine in the western half of the world famous Iberian Pyrite Belt.

 

Drilling has already commenced on the first hole which is situated in the Foupana priority target, one of 5 priority targets to be drilled, a large magmatic centre with corresponding EM anomalies potentially representing massive sulphide orebodies. The Alcoutim targets occur along strike of the supergiant Neves Corvo Cu-Zn-Pb-Ag- Au mine operated by Lundin Mining Corporation. Auroch's initial drill program will comprise three to five holes targeting geological environments similar to Neves Corvo in combination with significant geophysical anomalies along the Neves Corvo Trend.

 

The second is some highly prospective lithium acreage in Namibia. This acreage forms the Karibib Lithium Project. The Karibib Lithium Project is situated in the same region as Namibia's two historic lithium producing mines, Helikon and Rubikon. The company has five existing Exclusive Prospecting Licenses (EPLs) in the region and recently announced an Option and JV agreement to earn up to 90% of granted EPL 5751, which lies South West of Helikon and Rubikon.

 

Auroch Minerals has applied five EPLs in the Erongo region of Namibia which expands the potential for Auroch to identify a commercial lithium resource. The EPLs are distinguished by the presence of significant historical lithium production within the geological terrain and include untested pegmatites with strongly fractionated geochemistry indicative of potential lithium tantalum mineralisation.

Over 90% of Namibia's previous lithium production has been sourced from these EPLs. The EPLs in the Karibib area of Namibia occur in the same geological terrain that hosts the Rubikon and the Helikon mines, Namibia's two historical lithium producing mines. The Karibib area has seen little modern exploration and almost no drilling of the many lithium known occurrences.

Greenland Rare Earth Projects

Cadence owns 100% of three Exploration Licences. Two of these licences abut the northern and eastern boundaries of Greenland Minerals and Energy Limited's 'GGG' licences that encompass the world-class Kvanefjeld, Sørenson, Zone 3 and Steenstrupfjeld Rare Earth Element (REE) deposits.

 

An extensive exploration programme was carried out on all four of Cadence's exploration licences in south Greenland from June to August 2014. We have continued to review these licenses on an annual basis. Subsequent to the year we renewed the exploration licenses over two that were expiring at the end of 2016. We will continue to review these licenses on an annual basis, and will watch the progress that GGG makes over the coming year as it progresses the Kvanefjeld REE deposits.

 

FINANCIAL REVIEW

During the period the Group made an operating profit of £2.84 million compared to £0.24 million for the year ending 31 December 2015. This was primarily driven by a £3.21 million increase in unrealised profits on available for sale asset, which included our investments in Bacanora and European Metals. This resulted in total income for the period of £5.78 million (2015: £2.29 million). Profit before taxation was adversely affected by a one-off financing (£1.6 million) charge associated with the issue of warrants linked to the US$15 million convertible loan note issued during the year. Diluted earnings per share were 0.08p (2015: loss per share 0.06p).).

 

Administrative costs increased by £0.69 million to £2.94 million (2015: 2.25 million), this was primarily to an increase in administrative expenses associated with the detailed due diligence on potential new assets and development and support of our current assets. These fees were paid to third party providers.

 

During the year, the total Directors cash remuneration reduced by some 14% with some directors reducing their salary by up to 38%. According to the GCI survey of director's remuneration for 2016 Cadence's total director's remuneration falls below the median of AIM listed companies with a market capitalisation of between £20 and 50 million and below the lower quartile of companies with market capitalizations of £50 and £100 million.

 

The total assets of the Group increased from £19.58 million at the end of last year (31 December 2015) to £35.42 million. Total liabilities increased from £2.64 at the end of last year (31 December 2015) to £10.92 million at the end of this year. This was driven by an increase in borrowings associated with the convertible loan note issue during the year

 

During the period our net cash outflow from operating activities was £1.83 million, which was higher than the £0.97 million during the same period last year. We invested £7.85 million in available for sale assets and had receipts of £1 million on the sale of available for sale investments we spent £0.01 million in exploration assets which represented our net cash outflow from investing activities.

 

These investments plus other costs were funded by cash flows from financing activities totalling £12.04 million. This included £3.72 million of proceeds from the issue of share capital and net proceeds of £9.33 million from the issue of convertible loan notes. At the end of the period, the Company had cash and cash equivalents of £4.19 million.

 

 

Kiran Morzaria

Chief Executive Officer

30 May 2017

 

 

Report of the directors

For the year ended 31 December 2016

 

The Directors present their annual report together with the audited consolidated financial statements of the Group and the Company for the Year Ended 31 December 2016.

 

Principal activity

 

The principal activity of the Group and the Company is that of the identification, investment and development of Lithium and rare earth assets.  The Group is also exploring other mining related opportunities.

 

Domicile and principal place of business

 

Cadence Minerals plc is domiciled in the United Kingdom, which is also its principal place of business.

Business review

 

The directors do not recommend the payment of a dividend.

 

 

Key Performance Indicators

 

Due to the current status of the Group, the Board has not identified any performance indicators as key.

 

Principal risks and uncertainties

 

The principal risks and uncertainties facing the Group involve the ability to raise funding in order to finance the acquisition and exploitation of mining opportunities and the exposure to fluctuating commodity prices.

 

In addition, the amount and quality of minerals available and the related costs of extraction and production represent a significant risk to the group.

 

Financial risk management objectives and policies

 

The Group's principal financial instruments are available for sale assets, trade receivables, trade payables, convertible loans and cash at bank.  The main purpose of these financial instruments are to fund the Group's operations.

 

It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments shall be undertaken, with the exception of the equity swap arrangement , based on the Company's own share price, which has now been concluded.  The main risks arising from the Group's financial instruments are liquidity risk and interest rate risk.  The board reviews and agrees policies for managing each of these risks and they are summarised below.

 

Liquidity risk

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of equity and its cash resources.  Further details of this are provided in the principal accounting policies, headed 'going concern' and note 18 to the financial statements.

Interest rate risk

The Group only has borrowings at a fixed coupon rate of 5% and therefore minimal interest rate risk, as this is deemed its only material exposure thereto.  The Group seeks the highest rate of interest receivable on its cash deposits whilst minimising risk.

 

Market risk

The Group is subject to market risk in relation to its investments in listed Companies held as available for sale assets.

Directors

 

The membership of the Board is set out below.  All directors served throughout the period unless otherwise stated.

 

Andrew Suckling

Kiran Morzaria

Don Strang

Adrian Fairbourn

 

Substantial shareholdings

 

Interests in excess of 3% of the issued share capital of the Company which had been notified as at 11 May 2017 were as follows:

 

	Ordinary shares held Number	Percentage of capital %
Barclayshare Nominees Limited	989,619,760	12.72%
Hargreaves Lansdown (Nominees) Limited Des:15942	826,734,658	10.63%
Hargreaves Lansdown (Nominees) Limited Des:VRA	505,747,127	6.50%
TD Direct Investing Nominees (Europe) Limited Des:SMKTNOMS	463,959,308	5.97%
HSDL Nominees Limited Des:MAXI	456,239,464	5.87%
TD Direct Investing Nominees (Europe) Limited Des:SMKTISAS	380,875,207	4.90%
Hargreaves Lansdown (Nominees) Limited Des:HLNOM	379,392,616	4.88%
HSDL Nominees Limited	360,135,097	4.63%
HSBC Client Holdings Nominee (UK) Limited Des:731504	284,792,318	3.66%
Forest Nominees Limited Des:GC1	280,826,000	3.61%

 

Payment to suppliers

 

It is the Group's policy to agree appropriate terms and conditions for its transactions with suppliers by means ranging from standard terms and conditions to individually negotiated contracts and to pay suppliers according to agreed terms and conditions, provided that the supplier meets those terms and conditions.  The Group does not have a standard or code dealing specifically with the payment of suppliers.

 

Trade payables at the year end all relate to sundry administrative overheads and disclosure of the number of days purchases represented by year end payables is therefore not meaningful.

 

Events after the Reporting Period

 

Events after the Reporting Period are outlined in Note 19 to the Financial Statements.

 

Going concern

 

The Directors note the substantial losses that the Group has made for the Year Ended 31 December 2016.  The Directors have prepared cash flow forecasts for the period ending 31 May 2018 which take account of the current cost and operational structure of the Group.

The cost structure of the Group comprises a high proportion of discretionary spend and therefore in the event that cash flows become constrained, costs can be quickly reduced to enable the Group to operate within its available funding.

These forecasts demonstrate that the Group has sufficient cash funds available 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 financial statements have been prepared on a going concern basis.

 

Directors' responsibilities statement

 

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union  (IFRSs).  Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the group for that period.  In preparing these financial statements, the directors are required to:

 

-     select suitable accounting policies and then apply them consistently;

-     make judgements and estimates that are reasonable and prudent;

-     state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements;

-     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006.  They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 

In so far as each of the Directors are aware:

·    there is no relevant audit information of which the Group's auditors are unaware; and

·    the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 

 

Auditors

 

Chapman Davis LLP, offer themselves for re-appointment as auditor in accordance with Section 489 of the Companies Act 2006.

 

ON BEHALF OF THE BOARD

 

 

Kiran Morzaria

Director

Date: 30 May 2017

 

 

Corporate governance

For the year ended 31 December 2016

 

Directors

 

The Group supports the concept of an effective board leading and controlling the Group.  The Board is responsible for approving Group policy and strategy.  It meets on a regular basis and has a schedule of matters specifically reserved to it for decision.  Management supply the Board with appropriate and timely information and the Directors are free to seek any further information they consider necessary.  All Directors have access to advice from the Company Secretary and independent professional advice at the Group's expense. 

 

The Board consists of four Directors, who hold the key operational positions in the Company.  The Chairman of the Board is Andrew Suckling and the Group's business is run by the Chief Executive, Kiran Morzaria.

 

Relations with shareholders

 

The Company values the views of its shareholders and recognises their interest in the Group's strategy and performance.  The Annual General Meeting will be used to communicate with private investors and they are encouraged to participate.  The Directors will be available to answer questions.  Separate resolutions will be proposed on each issue so that they can be given proper consideration and there will be a resolution to approve the annual report and financial statements.

 

Internal control

 

The Board is responsible for maintaining a strong system of internal control to safeguard shareholders' investments and the Group's assets.  The system of internal financial control is designed to provide reasonable, but not absolute, assurance against material misstatement or loss.

 

The Board has considered the need for an internal audit function but has decided the size of the Group does not justify it at present.  However, it will keep the decision under annual review.

 

Board Committees

 

Audit and Remuneration Committees have been established. The Audit committee comprises Adrian Fairbourn (Chairman), Donald Strang, and Andrew Suckling, and the Remuneration Committee comprises, Andrew Suckling and Adrian Fairbourn (Chairman).

The role of the Remuneration Committee is to review the performance of the executive Directors and to set the scale and structure of their remuneration, including bonus arrangements. The Remuneration Committee also administers and establishes performance targets for the Group's employee share schemes and executive incentive schemes for key management. In exercising this role, the terms of reference of the Remuneration Committee require it to comply with the Code of Best Practice published in the Combined Code.

The Audit Committee is responsible for making recommendations to the Board on the appointment of the auditors and the audit fee, and received and reviews reports from management and the Company's auditors on the internal control systems in use throughout the Group and its accounting policies.

Report on remuneration

For the year ended 31 December 2016

Directors' remuneration

 

The Board recognises that Directors' remuneration is of legitimate concern to the shareholders.  The Group operates within a competitive environment, performance depends on the individual contributions of the Directors and employees and it believes in rewarding vision and innovation.

 

Policy on executive Directors' remuneration

 

The policy of the Board is to provide executive remuneration packages designed to attract, motivate and retain Directors of the calibre necessary to maintain the Group's position and to reward them for enhancing shareholder value and return.  It aims to provide sufficient levels of remuneration to do this, but to avoid paying more than is necessary.  The remuneration will also reflect the Directors' responsibilities and contain incentives to deliver the Group's objectives. 

 

The remuneration of the Directors was as follows:

	A Fairbourn		A Suckling		D Lenigas (1)		K Morzaria		D Strang		Total
	£		£		£		£		£		£
Short-term employment benefits:
Year to  31 December 2016
Salary and fees	48,000		150,000		-		150,000		150,000		498,000
Share based payments (2)	143,280		286,560		-		143,280		143,280		716,400
Total	191,280		436,560		-		293,280		293,280		1,214,400
Year to 31 December 2015
Salary and fees	48,000		25,000		210,000		85,000		210,000		578,000
Share based payments (2)	-		-		-		-		-		-
Total	48,000		25,000		210,000		85,000		210,000		578,000

 

At 31 December 2016 the following amounts were outstanding in fees to directors; A Suckling £Nil (2015: £25,000), D Strang £150,000 (2015: £Nil), K Morzaria £Nil (2015: £25,000).

 

(1)  D Lenigas resigned on 21 December 2015.

(2) Share based payments represent a Black and Scholes valuation of the incentive options granted to the directors during the year. Options are used to incentivise directors and are a non-cash form of remuneration.

 

Pensions

The company does not operate a pension scheme for its directors.

 

Benefits in kind

No benefits in kind were paid during the year to 31 December 2016 or the year ended 31 December 2015.

 

Bonuses
No amounts were payable for bonuses in respect of the Year ended 31 December 2016 or the year ended 31 December 2015.

 

Notice periods

 

Andrew Suckling, Kiran Morzaria, Don Strang and Adrian Fairbourn, each have a 12 months rolling notice period.

 

Share option incentives

 

At 31 December 2016 the following options were held by the Directors:

 

	Date of grant	Exercise price	Number of options
K Morzaria	21 May 2014	0.48p	60,000,000
K Morzaria	1 July 2016	0.44p	60,000,000
			120,000,000
A Fairbourn	13 December 2012	0.06p	20,000,000
A Fairbourn	21 May 2014	0.48p	40,000,000
A Fairbourn	1 July 2016	0.44p	60,000,000
			120,000,000
D Strang	21 May 2014	0.48p	60,000,000
D Strang	1 July 2016	0.44p	60,000,000
			120,000,000
A Suckling	1 July 2016	0.44p	120,000,000
			120,000,000

 

All options are exercisable between three and ten years from the date of grant.

 

The high and low share price for the year were 0.925p and 0.404p respectively (year ended 31 December 2015: 1.23p and 0.555p). The share price at 31 December 2016 was 0.5p (31 December 2015: 0.745p).

 

REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF
CADENCE MINERALS PLC (FORMERLY RARE EARTH MINERALS PLC)

We have audited the Group and Parent Company financial statements of Cadence Minerals plc for the Year ended 31 December 2016 which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the Company statement of financial position, the consolidated statement of changes in equity, the company statement of changes in equity, the consolidated statement of cash flows, the company statement of cash flows, the accounting policies, and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union.

 

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Directors and auditor

The Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

 

Opinion on financial statements

In our opinion the financial statements:

·    give a true and fair view of the state of the Group and Company's affairs as at 31 December 2016 and of the Group's loss for the period then ended;

·    have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·    have been prepared in accordance with the requirements of the Companies Act 2006.

 

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Report of the Directors for the financial period for which the financial statements are prepared is consistent with the group financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

·    Adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

·    The financial statements are not in agreement with the accounting records and returns; or

·    Certain disclosures of directors' remuneration specified by law are not made; or

·    We have not received all the information and explanations we require for our audit.

 

 

 

Keith Fulton
Senior Statutory Auditor
for and on behalf of Chapman Davis LLP
Statutory Auditor, Chartered Accountants
LONDON

Date: 30 May 2017

Consolidated Statement of comprehensive income

 

For the year ended 31 December 2016

		Year ended		Year ended
	Note	31 December 2016		31 December 2015 (restated)
		£'000		£'000
Income
Unrealised profit on available for sale assets	9	5,701		2,493
Realised loss on available for sale assets	9	(107)		-
Other income	1	189		-
		5,783		2,493
Share based payments		(717)		(641)
Depreciation, amortisation and fixed asset write offs		-		(63)
Other administrative expenses		(2,223)		(1,548)
Total administrative expenses		(2,940)		(2,252)
Operating profit	1	2,843		241
Share of associates losses	8	(200)		(129)
(Loss) on equity swap settlements		-		(545)
Finance cost	3	(2,027)		(419)
Profit/(loss) before taxation		616		(852)
Taxation	4	-		-
Profit/(loss) attributable to the equity holders of the Company		616		(852)
Other comprehensive income
Foreign exchange		(484)		(92)
Fair value adjustment of equity swap		-		389
Total other comprehensive income for the period, net of tax		(484)		297
Total comprehensive profit/(loss) for the year, attributable to the equity holders of the company		132		(555)
Earnings per ordinary share
Basic earnings/(loss) per share (pence)	5	0.008		(0.01)
Diluted earnings/(loss) per share (pence)	5	0.007		(0.01)

 

Consolidated statement of financial position

 

		31 December 2016		31 December 2015 (restated)
ASSETS	Note	£'000		£'000
Non-current
Intangible assets	6	1,909		1,706
Investment in associate	8	12,982		2,804
		14,891		4,510
Current
Trade and other receivables	10	402		229
Available for resale asset	9	15,967		13,944
Cash and cash equivalents		4,192		893
Total current assets		20,561		15,066
Total assets		35,452		19,576
LIABILITIES
Current
Trade and other payables	11	603		230
Borrowings	12	10,324		2,407
Total current liabilities		10,927		2,637
Total liabilities		10,927		2,637
EQUITY
Issued share capital	13	1,192		1,098
Share premium		27,145		22,161
Share based premium reserve		4,410		2,783
Hedging, Loan & Exchange reserve		(254)		(277)
Retained earnings		(7,968)		(8,826)
Equity attributable		24,525		16,939
to equity holders of the Company
Total equity and liabilities		35,452		19,576

 

The consolidated financial statements were approved by the Board on 30 May 2017, and signed on their behalf by;

 

 

 

 

Kiran Morzaria                                                                              Don Strang

Director                                                                                          Director

Company number 05234262

 

Company statement of financial position

At 31 December 2016

		31 December 2016		31 December 2015 (restated)
ASSETS	Note	£'000		£'000
Non-current
Investment in associates	8	10,297		-
Investment in subsidiaries	7	906		906
		11,203		906
Current
Trade and other receivables	10	4,632		4,354
Available for resale asset	9	15,967		13,944
Cash and cash equivalents		4,192		893
Total current assets		24,791		19,191
Total assets		35,994		20,097
LIABILITIES
Current
Trade and other payables	11	603		230
Borrowings	12	10,324		2,407
Total current liabilities		10,927		2,637
Total liabilities		10,927		2,637
EQUITY
Issued share capital	13	1,192		1,098
Share premium		27,145		22,161
Share based premium reserve		4,410		2,783
Hedging, Loan & Exchange reserve		(178)		(103)
Retained earnings		(7,502)		(8,479)
Equity attributable		25,067		17,460
to equity holders of the Company
Total equity and liabilities		35,994		20,097

 

The Company financial statements were approved by the Board on 30 May 2017, and signed on their behalf by;

 

 

 

 

Kiran Morzaria                                                                              Don Strang

Director                                                                                          Director

Company number 05234262

 

consolidated statement of changes in equity

At 31 December 2016

 

		Share capital	Share premium	Share based payment reserves	Hedging, Loan & Exchange reserve	Retained earnings	Total equity
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2015 (restated)		1,067	19,865	2,240	(574)	(8,072)	14,526
Share based payments		-	-	641	-	-	641
Transfer on lapse of options		-	-	(98)	-	98	-
Share issue		31	2,469	-	-	-	2,500
Share placing costs		-	(173)	-	-	-	(173)
Transactions with owners		31	2,296	543	-	98	2,968
Foreign exchange		-	-	-	(92)	-	(92)
Transfer to income statement		-	-	-	389	-	389
Loss for the year		-	-	-	-	(852)	(852)
Total comprehensive loss for the period		-	-	-	297	(852)	(555)
Balance at 31 December 2015 (restated)		1,098	22,161	2,783	(277)	(8,826)	16,939
Share based payments		-	-	717	-	-	717
Warrants issued		-	-	1,152	-	-	1,152
Transfer on lapse of options		-	-	(80)	-	80	-
Transfer on exercise of options		-	-	(162)	-	162	-
Equity component on issue of loan notes		-	-	-	507	-	507
Share issue		94	5,123	-	-	-	5,217
Share placing costs		-	(139)	-	-	-	(139)
Transactions with owners		94	4,984	1,627	507	242	7,454
Foreign exchange		-	-	-	(484)	-	(484)
Profit for the period		-	-	-	-	616	616
Total comprehensive income for the period		-	-	-	(484)	616	132
Balance at 31 December 2016		1,192	26,746	4,410	(254)	(7,968)	24,525

 

Company statement of changes in equity

At 31 December 2016

 

 

		Share capital	Share premium	Share based payment reserves	Hedging, Loan & Exchange reserve	Retained earnings	Total equity
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2015 (restated)		1,067	19,865	2,240	(436)	(7,877)	14,859
Share based payments		-	-	641	-	-	641
Transfer on lapse of options		-	-	(98)	-	98	-
Share issue		31	2,469	-	-	-	2,500
Share placing costs		-	(173)	-	-	-	(173)
Transactions with owners		31	2,296	543	-	98	2,968
Foreign exchange		-	-	-	(56)	-	(56)
Fair value adjustment on equity swap		-	-	-	389	-	389
Loss for the year		-	-	-	-	(700)	(700)
Total comprehensive loss for the period		-	-	-	333	(700)	(367)
Balance at 31 December 2015 (restated)		1,098	22,161	2,783	(103)	(8,479)	17,460
Share based payments		-	-	717	-	-	717
Warrants issued		-	-	1,152	-	-	1,152
Transfer on lapse of options		-	-	(80)	-	80	-
Transfer on exercise of options		-	-	(162)	-	162	-
Equity component on issue of loan notes		-	-	-	507	-	507
Share issue		94	5,123	-	-	-	5,217
Share placing costs		-	(139)	-	-	-	(139)
Transactions with owners		94	4,984	1,627	507	242	7,454
Foreign exchange		-	-	-	(582)	-	(582)
Profit for the period		-	-	-	-	735	735
Total comprehensive income for the period		-	-	-	(582)	735	153
Balance at 31 December 2016		1,192	27,145	4,410	(178)	(7,502)	25,067