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Cadiz Inc. Announces Plan For Implementation Of Water Project Following Environmental Approval

Cadiz Inc. (NASDAQ:CDZI) (“Cadiz” or “the Company”) is pleased to report today on its objectives for implementation of the Cadiz Valley Water Conservation, Recovery and Storage Project (“Project”) and other asset development programs following the unanimous approval of the Project last month by the Board of Directors of the Santa Margarita Water District (“SMWD”).

As previously reported, on July 31, 2012, the SMWD Board certified the Project’s environmental documents and also approved the Project, a Purchase & Sale Agreement and the Groundwater Management, Monitoring and Mitigation Plan (“GMMMP”). The Project is now approved to deliver an average of 50,000 acre-feet (“AF”) of water per year throughout Southern California. As a result of this significant milestone, the Project transitions from the entitlement phase. The Company expects to implement the Project and further its other asset development objectives as follows:

  • Conversion of existing option agreements with the Project participants into final purchase agreements. SMWD was the first participant to convert its option agreement and approve a purchase agreement following Project approval. The structure of the SMWD purchase agreement calls for an annually adjusted water supply payment of up to $500/AF including identified income streams, plus their pro rata portion of the capital recovery charge and operating and maintenance costs. The capital recovery charge is calculated by amortizing the total capital investment by the Company over a 30 year term. In consideration of its assumption of project management responsibilities throughout pre-construction, construction and Project operations, SMWD is acquiring water from the Project at a cost less than other Project participants.
  • Enter into agreements with new participants for Project supplies . The Company is in active negotiations with several additional wholesale and retail water providers that are interested in acquiring supplies from the Project. The Company will progress these new arrangements concurrently with the negotiations with existing participants.
  • Complete final design, construction bidding and construction financing. Earlier this year, the Company engaged an investment bank specializing in infrastructure financing with significant experience in California to lead the Company through the construction financing process for the Project. Based on the evaluations conducted by this investment bank, construction financing is expected to be entirely provided with lower-cost senior debt, secured by the new facility assets.
  • County of San Bernardino Acceptance of GMMMP. San Bernardino County has previously accepted responsibility for independently reviewing and enforcing the groundwater management plan for the Project. The GMMMP has been approved by SMWD and, in conformity with the May 2012 Memorandum of Understanding between the County, SMWD and Cadiz, it has been transmitted to the County for its review and approval.
  • Complete Tie-In Arrangements with the Metropolitan Water District (“MWD”). Project water supplies will enter the Colorado River Aqueduct in accordance with MWD’s published engineering and design standards. The Project will assume responsibility for the payment of all applicable fees and charges routinely established by MWD for the conveyance of water within its service territory.
  • Advance Phase II of the Project. With environmental review for Phase I completed, the Company is now in discussions with interested parties regarding the development of the imported storage component of the Project, or Phase II. Phase II would make use of the Project facilities constructed for Phase 1 to store imported water at the Project area, adding significant value for participants and the Company.
  • Development of Land Conservation Bank. The Company intends to convey approximately 9,000 acres of its properties located outside of the Project area to a conservation bank, making them available for purchase by third parties that have environmental mitigation requirements. The bank will offer credits that can be acquired by third party entities and the Company would receive payment for the value of the land available in the bank.
  • Progress New Water Transportation Segment. The Company continues to progress the conversion of two idle natural gas pipelines in Southern California to water transportation. The Company owns purchase options for both pipelines and is considering utilizing the lines either for the distribution of third party water or, in certain segments, as part of the Project. Initial feasibility studies indicate that, upon conversion, the two pipelines would have a combined average capacity to distribute up to 40,000 AF/year in markets that currently lack multiple water distribution opportunities.

It is standard for large infrastructure projects in California to face legal challenges. While the Company proceeds with the steps above, it expects to be party to various legal proceedings related to Project approval. Given the extensive work that was completed as part of the rigorous environmental review process, the Company does not believe that litigation will delay the next steps or alter plans for the construction of the Project.

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