REG - Cadence Minerals PLC - Sonora Lithium Investment Update

Cadence MineralsAnnouncement

31/08/2023 08:00

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RNS Number : 9314K  Cadence Minerals PLC  31 August 2023

Cadence Minerals Plc

("Cadence Minerals", "Cadence", or "the Company")

 

Sonora Lithium Investment Update

 

Cadence holds an interest in the Sonora Lithium Project via a 30% stake in the
joint venture interests in each of Mexilit S.A. de CV ("Mexilit") and Minera
Megalit S.A. de CV ("Megalit").

 

Mexilit and Megalit form part of the Sonora Lithium Project (the "Project").
The Sonora Lithium Project consists of nine granted concessions. Two of the
concessions (La Ventana, La Ventana 1) are owned 100% by subsidiaries of
Ganfeng Lithium Group Co., Ltd ("Ganfeng"). El Sauz, El Sauz 1, El Sauz 2,
Fleur and Fleur 1 concessions are owned by Mexilit S.A. de C.V. ("Mexilit"),
which is owned 70% by Ganfeng and 30% by Cadence. The Buenavista and San
Gabriel concessions are owned by Megalit, which is owned 70% by Ganfeng and
30% by Cadence.

 

Ganfeng has been developing the Project, consisting of an open pit mine and
lithium chemical product processing facility in Sonora, Mexico. The principal
planned lithium product for the Project is lithium hydroxide.

 

As previously announced by Cadence. In April 2022 and May 2023, the Mexican
Government approved amendments to its Mining Law (the "Mining Law Reform"),
which prohibited lithium concessions, declared lithium as a strategic sector
and granted the exclusive right to engage in lithium mining operations to a
state-owned entity. The Mining Law Reform is not supposed to apply to
pre-existing concessions, including those held by the Mexilit and Megalit.
Ganfeng's and Cadence's position is that these reforms cannot impact the
Project's concessions because they were granted prior to the enactment of the
Mining Law Reform.

 

This is consistent with the terms of the Constitution of Mexico, which, among
other principles and rights, recognizes the principles of legality and
non-retroactivity of laws. Guided by the principles of good faith,
cooperation, and mutual benefit, Ganfeng has been proactively engaging with
the Mexican Government in general and with the Secretary of Economy in
particular, regarding a potential collaboration on the Sonora Project while
respecting Ganfeng and its subsidiaries rights (including those subsidiaries
30% owned by Cadence). Ganfeng continues to seek a mutually beneficial
resolution. As of now, no agreement has been reached among the Company,
Ganfeng and the Mexican Government concerning this potential collaboration.

 

As the operator of the Project, including the concessions held by Mexilit and
Megalit, Ganfeng's ability to develop the Project is based on a series of
concessions granted in accordance with Mexican law and held by three
controlled subsidiaries of the Ganfeng incorporated in Mexico (the "Mexican
Subsidiaries").

 

While Ganfeng was holding discussions with the Secretary of Economy, the
General Directorate of Mines ("DGM") initiated a review of nine of the lithium
concessions held by the Mexican Subsidiaries, including the lithium
concessions including the concessions owned by Mexilit and Megalit.

 

According to the DGM, if the Mexican Subsidiaries failed to submit sufficient
evidence within the specified timeframe to prove that they had complied with
minimum investment obligations for the development of lithium concessions in
2017-2021, there was a risk of cancellation of the above-mentioned lithium
concessions.

 

As of May 2023, Mexlait and Megalit had submitted extensive evidence of their
compliance with the minimum investment obligations of the above-mentioned
lithium concessions in a timely manner. However, the DGM issued a formal
decision notice to the Mexican Subsidiaries in August 2023, indicating that
nine lithium concessions were cancelled, which include those owned by Mexilit
and Megalit.

 

The lithium concessions' cancellations issued by the DGM are not final and are
subject to ongoing appeals. Ganfeng and Cadence believe that the Mexican
Subsidiaries have complied with their minimum investment obligations, as
required by Mexican law. Indeed, the mine development investment by the
Mexican Subsidiaries has significantly exceeded the minimum investment
obligations, and the Mexican Subsidiaries regularly submitted to the DGM
annual reports for the 2017-2021 periods detailing their operations within the
prescribed period annually. The Mexican Government did not raise any
objections until it recently notified Mexican Subsidiaries that the minimum
investment obligations were allegedly not met, and it took action to cancel
the lithium concessions.

 

Moreover, Ganfeng and Cadence's position is that the resolutions cancelling
the concessions violate both Mexican law and international law as they are
arbitrary, unsubstantiated in both fact and law and infringe upon the
Company's, Ganfeng's and its Subsidiaries' fundamental due process rights.
Therefore, Ganfeng and the Mexican Subsidiaries have filed administrative
review recourses before the Secretary of Economy against the aforementioned
resolutions.

 

Impact on the Company

The lithium concessions' cancellations issued by the DGM are not final.
Depending on the progress of Ganfeng's further actions and the outcome of the
above-mentioned matters, whether cancellations will be revoked or maintained
in place and the scope of the concessions affected are still uncertain.

 

Cadence's investment into the Sonora Lithium project is circa £3.89 million.
The total value of Cadence's portfolio of assets is circa £41.15 million,
including £28.01 million attributed to our 30% stake in the Amapa Iron Ore
project.

 

Ganfeng's interim results announcement published on 29 August 2023 discussed
these developments as part of their post-balance sheet analysis. Therefore,
there is still uncertainty about the impact on Cadence's investment. Ganfeng
is pursuing various remedies, including administrative review recourses to
challenge the DGM's resolutions. If necessary, Ganfeng will resort to
additional remedies under Mexican or international law.

 

Cadence will continue to liaise with our joint venture partners on a regular
basis and ensure within the limits of the join venture agreement that the
matter is given the utmost attention and that regulatory requirements are
fulfilled in a timely manner.

 

Cadence CEO Kiran Morzaria commented: "While on the face of it, this
development further delays the prospect of a return from the Mexalit and
Megalit concessions for Cadence shareholders, it is important to remember that
any opportunity to grow value at Sonora would only start to accrue once mining
commences in the concessions owned by Mexilit, which is nine years into the
mine life. In the board's opinion, substantially more value is to be had from
our 30% stake in the Amapa Iron Ore Project once it is brought back into
production."

 

"I look forward to reporting on further progress at Amapa."

 

 

 For further information contact:

 Cadence Minerals plc                                           +44 (0) 20 3582 6636
 Andrew Suckling
 Kiran Morzaria

 WH Ireland Limited (NOMAD & Broker)                            +44 (0) 207 220 1666
 James Joyce
 Darshan Patel

 Brand Communications                                           +44 (0) 7976 431608
 Public & Investor Relations
 Alan Green

Qualified Person

Kiran Morzaria B.Eng. (ACSM), MBA, has reviewed and approved the information
contained in this announcement. Kiran holds a Bachelor of Engineering
(Industrial Geology) from the Camborne School of Mines and an MBA (Finance)
from CASS Business School.

 

Cautionary and Forward-Looking Statements

Certain statements in this announcement are or may be deemed to be
forward-looking statements. Forward-looking statements are identified by
their use of terms and phrases such as "believe", "could", "should",
"envisage", "estimate", "intend", "may", "plan", "will", or the negative of
those variations or comparable expressions including references to
assumptions. These forward-looking statements are not based on historical
facts but rather on the Directors' current expectations and assumptions
regarding the Company's future growth results of operations performance,
future capital, and other expenditures (including the amount, nature, and
sources of funding thereof) competitive advantages business prospects and
opportunities. Such forward-looking statements reflect the Directors' current
beliefs and assumptions and are based on information currently available to
the Directors.  Many factors could cause actual results to differ materially
from the results discussed in the forward-looking statements, including risks
associated with vulnerability to general economic and business conditions,
competition, environmental and other regulatory changes actions by
governmental authorities, the availability of capital markets reliance on key
personnel uninsured and underinsured losses and other factors many of which
are beyond the control of the Company. Although any forward-looking statements
contained in this announcement are based upon what the Directors believe to be
reasonable assumptions. The Company cannot assure investors that actual
results will be consistent with such forward-looking statements.

 

The information contained within this announcement is deemed by the Company to
constitute Inside Information as stipulated under the Market Abuse Regulation
(E.U.) No. 596/2014, as it forms part of U.K. domestic law under the European
Union (Withdrawal) Act 2018, as amended. Upon the publication of this
announcement via a regulatory information service, this information is
considered to be in the public domain.

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