LOS ANGELES - Cadiz (NASDAQ:CDZI) Inc. (NASDAQ: CDZI / CDZIP), a California-based water solutions company, has entered into a definitive 50-year agreement with Santa Margarita Water District (SMWD) to supply water through its Northern Pipeline, originating from the Cadiz Water Project in the Mojave Desert. The contract, which was unanimously approved by SMWD's board of directors on June 5, stipulates the delivery of 5,000 acre-feet per year at a capped price of $1,650 per acre-foot.
The agreement, following a term sheet signed in February 2024, is expected to provide significant revenue that will support the financing of the Northern Pipeline infrastructure. Cadiz will deliver the water to groundwater banks along the 220-mile pipeline, which will then be available for SMWD through State Water Contractors and local water suppliers.
This deal marks a step forward for SMWD in diversifying its water supply portfolio and reducing reliance on the Colorado River and State Water Project resources. By utilizing the Northern Pipeline, SMWD aims to accelerate diversification, manage costs, and enhance regional resilience.
Cadiz's CEO, Susan Kennedy, highlighted the partnership with SMWD as a reflection of their shared commitment to conservation and efficiency. SMWD board member Frank Ury expressed the project's role in diversifying the district's water supply and building resilience.
With this agreement, SMWD secures an alternative delivery path for a portion of its contractual rights to acquire up to 15,000 acre-feet per year from the Cadiz Project. The Northern Pipeline is anticipated to be operational by 2026, and Cadiz has already secured agreements for 65% of its capacity, with negotiations underway for the remaining capacity.
The terms and conditions of the agreement are detailed in Cadiz's Current Report on Form 8-K filed on March 4, 2024. Cadiz Inc., established in 1983, focuses on providing sustainable water supply, storage, pipeline, and treatment solutions to address the impacts of climate change on water access.
This news is based on a press release statement and should be considered in light of the risks and uncertainties inherent in forward-looking statements, which may include potential construction delays and conditions required for water delivery.
In other recent news, water solutions company Cadiz Inc. has been making strategic moves to bolster water accessibility in California. The company recently signed a Letter of Intent to supply the City of Hesperia with 75,000 acre-feet of water. This agreement is part of the "One Water" Initiative, which aims to develop a coordinated water management strategy in San Bernardino County's Mojave River region.
In addition, Cadiz has entered into significant water supply agreements with Solstra Communities California LLC and Golden State Water Company. The company will deliver 1,275 acre-feet of water annually to Solstra, supporting the development of over 4,000 homes near Vandenberg Space Force Base. For Golden State, Cadiz will provide water to the City of Barstow.
These recent developments are part of Cadiz's broader strategy to enhance water supply reliability in California by utilizing its existing infrastructure. The company's Northern Pipeline, which has a capacity of 25,000 acre-feet per year, is nearing full capacity reservation. It is important to note that these are recent developments and further announcements are expected soon.
InvestingPro Insights
As Cadiz Inc. (NASDAQ: CDZI / CDZIP) embarks on a transformative 50-year agreement with Santa Margarita Water District, the company's financial standing and market position warrant a closer examination. According to InvestingPro data, Cadiz is positioned as a niche player in the water solutions industry, which could be pivotal as it leverages its unique assets in the Mojave Desert to meet the growing demand for water in Southern California.
InvestingPro Tips suggest that while analysts are optimistic about Cadiz's sales growth in the current year, they remain cautious about its profitability, not expecting the company to be profitable this year. This outlook is particularly relevant for investors considering the financial commitments involved in the Northern Pipeline project. Furthermore, Cadiz's liquid assets exceed its short-term obligations, which may provide some financial cushion as it undertakes this significant infrastructure project.
In terms of valuation, Cadiz is trading at a high revenue valuation multiple and a high Price / Book multiple, which could indicate that the market has high expectations for the company's future performance, despite it not being profitable over the last twelve months. Moreover, the price of Cadiz's shares has fallen significantly over the last five years, which might present a more attractive entry point for investors who believe in the long-term prospects of the company's water supply initiatives.
It is worth noting that Cadiz does not pay a dividend to shareholders, which could be a consideration for income-focused investors. To gain deeper insights into Cadiz Inc. and to access additional InvestingPro Tips, interested parties can visit https://www.investing.com/pro/CDZI. There are currently 6 additional tips available on InvestingPro, and readers looking to subscribe can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
InvestingPro Data metrics:
- Analysts anticipate sales growth in the current year.
- Liquid assets exceed short-term obligations.
- Trading at a high revenue valuation multiple.
These insights and metrics provide a snapshot of Cadiz Inc.'s financial health and market position as it forges ahead with its strategic water supply agreement.
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