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.
In order to execute the important steps outlined above and to be in a position to commence construction, the Company estimates that approximately $15 million will be required to fund these activities. The structure of any capital raise will be consistent with past practices, namely the Company’s goal of minimizing dilution to current shareholders. Further, consistent with the recently acquired option right to extend the Company’s existing mortgage debt’s maturity, the Company will continue to work with its lenders to refinance, extend or otherwise arrange that the term of the debt is coterminous with commencement of the Project’s construction financing.The current and projected demand for water and water reliability in Southern California is a key driver of the Project. As a result of ongoing challenges to California’s traditional water supplies, water providers are engaged in serious efforts to identify and develop new water supply options. Earlier this month, some of the State’s largest water providers announced plans to construct major tunnels around the Sacramento-San Joaquin Bay Delta at a cost of approximately $20 Billion. If implemented, this proposal would be financed by ratepayers and will likely only maintain the status quo and not revive historic deliveries from the Delta. In order to meet the challenges to California’s water supply, many new solutions are being explored in addition to improvements to the Delta delivery system. “The Project offers a unique, cost-effective Southern California-based water supply that has been developed using private capital and protects existing rate structures in Southern California,” said Scott Slater, Cadiz President and General Counsel. “The Project will also offer the ability to store water in periods of excess supply for use in future dry years, which is a distinctive characteristic not offered by other new supply alternatives. As a result, our customers will receive an affordable water supply solution at a competitive advantage to other available supply investments.”
In addition to the business objectives outlined above, the Company remains committed to its organic agricultural operation and new legacy investments at its property in the Cadiz Valley, including a tourist rail operation, desert cultural center, and surface land conservation initiatives. These new programs will be implemented concurrently with the Project.About Cadiz Inc. Founded in 1983, Cadiz Inc. is a publicly-held renewable resources company that owns 70 square miles of property with significant water resources and clean energy potential in eastern San Bernardino County, California. The Company is engaged in the development of water supply and storage projects and operates an organic farm in the Cadiz Valley. In 2009 Cadiz adopted a wide-ranging “Green Compact” to implement environmental conservation and sustainable management practices at its properties. For more information about Cadiz, visit www.cadizinc.com. FORWARD LOOKING STATEMENT: This release contains forward-looking statements that are subject to significant risks and uncertainties, including statements related to the future operating and financial performance of the Company and the financing activities of the Company. Although the Company believes that the expectations reflected in our forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Factors that could cause actual results or events to differ materially from those reflected in the Company’s forward-looking statements include the Company’s ability to maximize value for Cadiz land and water resources, the Company’s ability to obtain new financing as needed, the outcome of litigation related to the water project and other factors and considerations detailed in the Company’s Securities and Exchange Commission filings.