Brazil’s Next Iron Ore Success Story Trading at Extreme Valuation Discount

In a strategic move to capitalize on Brazil’s iron ore sector, London-listed Cadence Minerals is advancing its flagship Amapá iron ore project toward production, positioning itself to become a significant player in the high-grade iron ore market despite current industry headwinds.

The AIM-traded company holds a 35.1% stake in the Amapá project, which boasts impressive economics with a net present value of $1.97 billion over a projected 15-year mine life. The operation targets annual production of 5.5 million tons of premium 67.5% Fe grade direct reduction pellets, placing it in the high-value segment of the global iron ore market.

CEO Kiran Morzaria, who brings extensive experience from the Cambridge School of Mines and previous successful mining ventures, has structured Cadence’s business model around acquiring undervalued assets requiring technical or legal resolution.

“We looked at processes where the technology was early stage but we believed they could succeed through different forms of processing—nothing new, but applying different technologies,” Morzaria explained when discussing the company’s investment approach.

The Amapá project represents a brownfield development acquired through judicial recovery proceedings, giving Cadence and its Brazilian partner Indo Sino Trade significant advantages over greenfield projects. The venture benefits from existing infrastructure and proven reserves, reducing both risk and capital requirements compared to new developments.

What sets Amapá apart from competitors is its fully integrated infrastructure—a complete mine-to-market supply chain including the mine itself, a railway concession, and port facilities. This integration enables remarkably low operating costs of $27 per ton FOB, recently improved from previous estimates of $33-34 per ton.

“One of the reasons we can keep costs low is because we own our own port. We have effectively a renewable concession on the railway, which will renew every 23 years,” noted Morzaria.

The railway concession operates on renewable 23-year terms with capacity for 7 million tons annually, exceeding the project’s planned production and creating potential additional revenue streams through third-party logistics services. Historical operations already demonstrated this potential by carrying approximately 700,000 tons of third-party material.

The current iron ore market presents complex challenges with weak Chinese steel demand offset by continued inventory building. Major producers like Vale are increasing production despite limited sales growth, while new high-grade projects such as Guinea’s Simandou mine prepare to enter the market in November.

Despite these challenges, Cadence’s high-grade product and integrated cost structure provide defensive positioning. The company can deliver material to China at CFR costs of $55-60, remaining competitive even under pessimistic pricing scenarios of $80-90 per ton for standard 62% Fe content.

The most immediate catalyst for shareholder value lies in the planned restart of the Azteca plant, which requires only $3.5 million in capital expenditure. This smaller-scale operation could produce 330,000-390,000 tons annually of 65% Fe material within nine months, generating substantial margins at current prices by utilizing pre-treated ore stockpiles.

This staged approach serves multiple strategic purposes: demonstrating execution capability to potential partners, securing necessary mining licenses for full-scale development, and generating cash flow that could fund further studies or provide returns to shareholders.

However, the full project’s $370 million capital requirement necessitates strategic partnership given Cadence’s current market capitalization of approximately £10 million. Management is actively pursuing joint venture arrangements with larger mining companies or off-take partners capable of providing balance sheet support for debt financing.

“It really has to be about bringing on a JV partner to take it to the next step—that being DFS, that being FID, and then of course construction,” Morzaria emphasized.

Cadence maintains first right of refusal to increase its ownership to 49% at a $100 million total project valuation, providing growth options as development progresses.

On the regulatory front, Brazilian mining regulations require multiple permits across environmental and federal jurisdictions. Cadence has made substantial progress, with environmental authorities agreeing to bypass preliminary licensing stages due to the project’s previous operational history. Mining installation licenses are expected by year-end, with railway licensing well advanced and port licensing requiring additional environmental studies.

The investment case for Cadence centers on the significant disconnect between its £10 million market capitalization and its 35% ownership in a project with a $1.97 billion NPV. The integrated infrastructure advantage, near-term cash flow potential from the Azteca plant, and premium product positioning in a stable Brazilian mining jurisdiction create a compelling opportunity for investors willing to accept the financing risk.

As global steel producers increasingly optimize for quality over quantity, particularly in direct reduction processes supporting cleaner steel production, Amapá’s high-grade product should command premium pricing while its integrated logistics provide protection against market volatility.