In a recent development, Cadiz (NASDAQ:CDZI) Inc., a company specializing in water supply, has announced its partnership with a non-profit investment fund to finance sustainable infrastructure projects. The collaboration, detailed in a letter of intent (LOI) dated October 30, 2024, involves a prospective investment by the Fund of up to $150 million.
This investment aims to support the creation of a new entity (Newco), which is expected to be managed by Cadiz or a subsidiary, with the participation of the Fund and other potential investors. Newco's objective is to mobilize capital for the construction, ownership, and operation of Cadiz’s groundwater banking project in the Mojave Desert, known as the Mojave Groundwater Bank, and related projects.
Under the LOI, Cadiz will transfer and contribute significant assets to Newco, including complete ownership of the Northern Pipeline, the Southern Pipeline right of way, and a majority of the water storage rights in the Mojave Groundwater Bank. In return, Newco will compensate Cadiz approximately $51 million, among other considerations, and Cadiz will retain a 49% stake in the water storage rights. Notably, existing water supply contracts between Cadiz and public water providers will not be included in this arrangement.
Cadiz is set to serve as the general partner or managing member of Newco. The profitability model outlined in the LOI prioritizes investors until they achieve a 7.5% annual yield, with subsequent distributions benefiting low-income disadvantaged communities, Tribes, the investors, and Cadiz.
The company has committed to ensuring that its water supply, storage, and conveyance projects benefit low-income and disadvantaged communities, including federally recognized Native American Tribes. These communities will have the opportunity to acquire ownership interests in Newco and participate in an advisory council for the management of groundwater resources.
The Mojave Groundwater Bank will adhere to all applicable laws, and Newco will be structured to comply with federal grant requirements, including the Build America Buy America Act and Davis-Bacon Act labor standards.
The company's forward-looking statements are subject to a variety of factors that could cause actual results to differ materially, including the possibility that binding agreements may not be reached or that necessary funding may not be available. Cadiz Inc. has stated that it will not provide updates on these forward-looking statements except as required by law.
In other recent news, Cadiz Inc. and RIC Energy have announced plans to establish the largest green hydrogen production site in California, aiming to produce green hydrogen using solar power. On the water supply front, Cadiz's subsidiary, ATEC Water Systems, has secured three new contracts valued at $1.6 million. Furthermore, Cadiz has reached near full capacity deals for its Northern Pipeline, with purchase commitments for 85% of the pipeline's capacity.
B.Riley has reiterated a Buy rating on Cadiz shares, emphasizing the company's potential for a significant positive shift if it successfully establishes a Master Limited Partnership. In terms of personnel changes, Cadiz has appointed Cathryn Rivera as its new Chief Operating Officer, whose extensive experience in senior management is expected to drive the execution of Cadiz's groundbreaking groundwater banking project.
InvestingPro Insights
As Cadiz Inc. (CDZI) embarks on this ambitious partnership to finance sustainable infrastructure projects, InvestingPro data provides additional context for investors. The company's market capitalization stands at $208.44 million, reflecting its current market valuation. Despite the promising partnership announcement, CDZI has faced challenges, with its stock price falling significantly over the last three months (-19.89%) and five years, according to InvestingPro Tips.
Interestingly, CDZI has shown a 27.18% revenue growth in the last twelve months, which aligns with the company's efforts to expand its operations. However, an InvestingPro Tip indicates that CDZI suffers from weak gross profit margins, which is corroborated by the reported gross profit margin of -47.17% for the same period. This suggests that while the company is growing its top line, it's struggling with profitability—a factor that potential investors in the new Newco entity may want to consider.
Another relevant InvestingPro Tip notes that CDZI's liquid assets exceed its short-term obligations, which could be seen as a positive sign for its ability to fund new ventures like the Mojave Groundwater Bank project. For those interested in a deeper analysis, InvestingPro offers 12 additional tips for CDZI, providing a more comprehensive view of the company's financial health and market position.
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