Fellas, you're going to see quite a bit of me in the coming months as I start to try and bring a degree of balance to the general pile of poo that passes for intelligence about this company and water issues in CA generally. So let's start with a full disclosure: i own shares and have for some time, think the stock is dramatically undervalued, and am excited about its prospects over the next 2 years. I am also however, realistic about both the execution risks ahead and the very mixed performance of the company's management to date, particularly Keith Brackpool. All this, in my opinion, in stark contrast to the deeply nasty, biased individuals on this board who are clearly short the stock and continue to peddle their toxic mix of innuendo, half-truths and often flagrant ignorance in pursuit of pushing the shares down and making a buck. And they do all this while constantly implying they aren't just as money grubbing as the rest of us, but actually pursuing some higher purpose in trying to keep some sort of evil capitalist enterprise from sucking the desert dry. It's that self righteous cherry on the top of the sundae of misinformation that has finally gotten me off my fat butt and on to this board. But I'm confident that there are many readers who agree with me, who are looking at the water demand in the state and the company's long efforts to help meet some of that demand while more than satisfying environmental requirements and are wondering if the shares don't offer an interesting risk/reward at 10 bucks.
I don't have time now to go into the detail I would like on every critical issue that the nasty brothers have gotten and continue to get wrong, but here's a quick, non-comprehensive overview:
- The role of the MWD - this is an ongoing Big Lie. The MWD does not, repeat DOES NOT, have any oversight of this project and can not, repeat CAN NOT, 'vote it down'. For any nasty brother who is relying on some MWD vote in the future to do that and send the shares down is going to be waiting a long time. The entities that can actually do that, the SMWD and/or San Bernadino, have already voted and we all know how those votes went. Of course, the MWD does act as gatekeeper for the Colorado River Aqueduct, but even here you guys are peddling misinformation. The MWD can't arbitrarily refuse to allow a supplier like Cadiz use of its infrastructure because somehow they don't approve of the project or some such nonsense. This isn't high school and Cadiz isn't the class nerd. There are very real laws like the Wheeling Act that compel the MWD to make its excess capacity available to legitimate suppliers like Cadiz. And if there isn't sufficient capacity at some point in time? Well that would be a problem - and an added cost of course - for Cadiz, but that's a pretty decent risk for them to be taking given the aqueduct's recent history of capacity surpluses, don't you think?
- The quality of Cadiz water - another Big Lie that opponents seem to think will become less fallacious the more they repeat it. Cadiz water is significantly within state and federal guidelines on everything, including Chromium6.
- The short position and possible fundings - this is a big one, a really big Big One. The 1.4mm shares short that NASDAQ says are out short in Cadiz doesn't just represent a whole lot of buying that's going to have to be done eventually. It also represents a much, much, much bigger percentage of the free float than you nabobs appreciate. You may think it represents less than 10% of the share capital of the company and therefore isn't such a big deal, but in fact, since well over 60% of those shares are with the top 8 shareholders and management who are not selling (in fact, some of the bigger shareholders have been buying recently), those 1.4mm actually constitute around 25% of the free float. Without prejudice, I would respectfully suggest that we have the prospect of the king kong of all squeezes here should the news flow continue to be positive and we can break the resistance at $10.....ahhhh, but what about the big, bad FINANCING that the nasty brothers keep referring to in that faux sophisticated way that makes you just want to slap them ('why would aaaaanyone, ever want to buy the stock now at this price when this big, horrible fund raise is coming and you'll surely be able to buy the stock sooooooo much cheaper then....' cue vomitting). Well, because that financing may just get done with some of those large shareholders who believe in the company and anyone short and hoping to cover that way would be sorely disappointed (cue king kong squeeze....). That's why
As I said, that's not an exhaustive list, but I'll stop here and wait for the inevitable response to add more.
Sentiment: Strong Buy
Oh little Debbie. The fact remains, the company does not generate earnings or cash flow for its investors, meaning the equity has no value.
The business model is nothing more than a scam.
Sentiment: Strong Sell
One other note on the rates - even with what appears to be a fairly discounted rate to SMWD as the first participant, if you go to the SMWD press release on their website, they are estimating total cost to customer homes of $827 to $1127. I believe this includes their portion of amortized capital costs. But it's not cheap water. It's hard for me to believe other agencies will be willing to pay substantially more than that though.
and one last note - from LA times
"Slater has said he hopes to lessen costs by undertaking limited treatment in the well field and blending the groundwater in the aqueduct with river water. That would also provide a benefit to the MWD, he has suggested, because the groundwater has lower levels of corrosive salts than the river supplies."
MWD has said it won't agree to this. But even Slater has acknowledged there will have to be treatment, which I don't think was included in the earlier cost estimates. That increases the cost of water to households, and is why some of the MWD members are saying the numbers don't pencil out.
On Altima - they actually filed an S-1 on 3/28/12 to sell half of their holding - but I guess they didn't follow through on that? The recent purchases have been relatively small - I really don't know what their funds are all about. Don't know why they only own CDZI and IOC.
I wasn't saying CDZI was a fraud, (how could it be with no revenue) - was just saying hedge funds make good and bad decisions just like everyone else - but fair enough on Enron, was just trying to think quickly of a well known company that was broadly held and lost people a lot of money.
Good idea on waiting to see what rates they can get w other agencies. Hard for me to see why other agencies would pay a huge premium to SMWD, but let's see.
Noone seems to know what the MWD wheeling fee would be?
Hi Debbie, I think most of us who post here welcome a little push-back - I just don't think you've made the case for a long, or even neutral position here -
On MWD - its possible if CDZI can satisfy all the tech requirements and can pay the appropriate fees, they will eventually get access, particularly with support of LA agency (voting board member) - that said, they will almost certainly have to add a treatment facility, increasing project costs - this is supported by both MWD comments in EIR and by recent public comments from Orange County MWD members -
The project also may have to undergo federal review depending on how the BLM rules on the rail right of way argument -
Then run the numbers - $750/acre/ft * 50K acre ft = $37.5 mil (note that SMWD is $500 acre/ft)
Pro Forma debt at completion should be at least $300 million, so interest at least $15 mil (if they can actually get 5% financing, which I personally doubt)
Assume G&A stays flat, even though company will go from a shell to an operating concern: $10 mil
You've got pretax profit of $13 mil - and that generously assumes that all of the plant depreciation costs are reimbursed by the agencies, which is not assured - include depreciation and you'd be around break even.
But using the optimistic case $13 mil, what multiple should a this get? It has some utility qualities, but much more risk of cash flow interruption, given the required access to MWD and ongoing quality review - also, it may prove to be a terminal (ie, non-perpetual) revenue stream if the water table declines - I think a 15 multiple would be about the max - so you're at 15x13, or $195 mil - assume two years to revenue realization from today, with an 8% cap rate (which I think is low), and you're at a present value of $167 million
PF for the $15 mil equity raise, CDZI current cap is $170 mil
And that's an optimistic case. Assume higher G&A, higher interest rate, and non-reimbursement for some cap ex (ie, real depreciation costs), and this may not even be profitable. And all of that presupposes they can even get Federal and MWD approval.
the only real number we know at this point is $500 A/Ft, which is the SMWD rate - so maybe they'll get $1 million/A/Ft, but talk is cheap -
speaking of which, don't they have to pay a wheeling fee on that $500 to MWD? So it's not even a net number, correct? Someone suggested a $250 A/Ft wheeling fee, but I don't know what that was based on.
as far as Altima, their only other holding in the alternatives fund where they hold CDZI is IOC, which like CDZI, is a professional press release organization and has never made a cent.
And with any stock, there are always smart longs and smart shorts - a lot of smart people owned Enron - all things revealed in time.
The only thing I agree w you on is that periodic short squeezes are almost a certainty for awhile.
This is a great response. I agree 100%. The reality there is little to any upside in the shares even if it does move ahead. Probability-weight it and you can see big downside. If it doesn't go ahead it's likely a zero as their land probably can't cover their existing debt. All IMHO.
xds is dead-on with respect to MWD and the aqueduct access - what they certainly can do is lay down the conditions that must be met. Regarding Chromium6 it's not necessarily that it is within tolerance, I think the point is that it is much higher than the existing water flowing through the aquaduct (my understanding) so they may simply require treatment, full stop.
Another issue regarding the acquaduct is if you read MWD's comment letters, is they have applied to be designated a national historic site - therefore CDZI may have to incur additional cost making it look identical to the existing infrastructure - queue the early 20th century stonemasons!
It's also my understanding they may be trying to jam their water pipleine over existing federal railroad concessions - possibly requiring federal review as they are for railroads, not water pipes. My understanding is the telcos wanted to run fiberoptic cable over these things in the past and ran into huge problems.
Throw in the lawsuits, and that now a senior Senator wants to review the project, etc etc. and you can see it can be completely derailed by a number of individual things.
But the main point is the valuation. Debbie you state you think the stock is "dramatically undervalued". Please share your math on that as we just dont get it. We know how many acre-feet of water they are selling (50K), we know what the price is ($750 max), we know what the operating costs are stated to be ("under $100 per acre-foot), and we know what the project is supposed to cost ($$275M assuming no increase!), and we know what the current value is. So please tell us how you arrive at your conclusions.
If I assume $50 /acre-foot in operating cost (that is "under $100" that CDZI has stated)
$700 in gross profit / acre-foot x 50,000 = $35M gross profit. Less 5% x $275M interest = $18.8M give $16M before any G&A whatsover. Assume their current $10M G&A is able to magically drop to $5M, that would be $11M pre-tax profit. Now assume ZERO tax (LOL). and a 15x muliple = $165M. And that is once it is built and operating, years in the future. To get a present value let's discount that back at 15% per year for 2 years. That gives $119M. But they need to raise $15M so back off that and you are at $104 million which is something like $6.75 per share in value today. Factor in taxes, additional dilution from options, and probability weight the success.
Let's see your math debbie - show me any scenario at all that makes CDZI worth more than what it is trading at.
I too welcome legitimate discussion and debate, so let's get to the math.
Sentiment: Strong Sell