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We Still Think Cadiz Is Worthless: So Cal Metropolitan Water Department 'Not Pursuing' CDZI's Water Project

We continue to stand by our analysis that the equity in Cadiz Is 100% worthless.

The company was recently denied a railroad right of way exemption by the Department of the Interior Bureau of Land Management to use Federal land to build its water pipeline.

CDZI now appears to be subject to Federal review, which we believe has almost zero chance of approval. In the interim, Cadiz is burning cash with major debt due early.

Even if approved, the company would have to appease the Metropolitan Water District, which owns the Colorado River Aqueduct and which seems to have a strong distaste for all things at Cadiz.

A Metropolitan Water Department of Southern California Meeting on October 13, 2015, confirmed the MWD was "not pursing any negotiations or conversations at all".

Even if you don't agree with our conclusion on Cadiz (NASDAQ:CDZI) - a conclusion that states that the company's sole project is extremely unlikely to materialize (which we will reiterate with new MWD commentary) - the capital that the company would have to raise in order to complete this project would likely be in the hundreds of millions of dollars - a sum that we think would be near impossible to raise without issuing tons of equity, especially given the company's current balance sheet. In our opinion, Cadiz is just a terrible stock to own, with or without eventual success of its water project. Based on MWD's comments made just days ago, we look to move the ball further on our case that CDZI's equity is worthless.

Metropolitan Water Department of Southern California Director: "...I hope we're not making any representations that we're going to help [Cadiz] try to push the project forward..."

Metropolitan Water Department of Southern California General Counsel: "...we are not pursuing any negotiations or conversations at all."

  • Metropolitan Water Department of Southern California Legal and Claims Committee Meeting, 10/13/15, (37:00)

Our Initial Call: 100% Downside

A couple of weeks ago, we wrote an article describing in detail why we think Cadiz's equity is worth $0. The company is a cash-burning entity that relies on financing to fund its operations. The company has a negative tangible book value and the current CEO appears to be enriching himself and his law firm by way of CDZI's common shareholders. Five key points of our initial article were:

  • A letter on October 5th from the California State Office of the Bureau of Land Management continues to paint a bleak picture for CDZI's focus - its ongoing "water project".
  • This reconciles with, and further validates, past critical articles suggesting that the project is doomed for eventual failure and, as such, the company may be as well.
  • On top of its main business operation looking like an impossibility, CDZI faces a major liquidity crisis and has enormous debt coming due
  • As it stands, CDZI's balance sheet is insolvent and the company's equity is worth $0 on paper, with seemingly no future road toward profitability or cash generation.
  • Without steady profits, we value CDZI at what it's worth on paper and believe it's on its way to $0, be it from bankruptcy, eventual dilution or other means.

We concluded our article by stating that the recent opinion of the Bureau of Land Management forecasts a very dubious, if not outright impossible, future for CDZI's solo project - a project that it has been unable to get off the ground for the last 15 years. Today, we are going to present brand-new information from an October 13 meeting of the Metropolitan Water District of Southern California that seems to finalize that CDZI's project is not going to be moving forward in any meaningful capacity anytime soon.

We think that the comments presented herein clearly validate our opinion that CDZI, as an investment, is 100% worthless.

MWD: 13 Years of Worrying Cadiz Will Go Bankrupt

The Metropolitan Water District of Southern California ("MWD") plays a crucial role in the future of CDZI's sole hope for its business. The Metropolitan Water District owns and operates the Colorado River Aqueduct ("CRA"), which is a key component of its proposed plan.

To supply the more than 300 cities and unincorporated areas in Southern California with reliable and safe water, Metropolitan owns and operates an extensive water system including: the Colorado River Aqueduct, 16 hydroelectric facilities, nine reservoirs, 819 miles of large-scale pipes and five water treatment plants. Four of these treatment plants are among the 10 largest plants in the world. In fact, Metropolitan is the largest distributor of treated drinking water in the United States. The District imports water from the Feather River in Northern California and the Colorado River to supplement local supplies. It also helps its member agencies develop water recycling, storage and other local resource programs to provide additional supplies and conservation programs to reduce regional demands.

In other words, the MWD, like the Federal government whose land CDZI is proposing to use, must be on board for this project to even think about moving forward as it has been presented in the past.

Consult this handy checklist provided by CDZI in an October 2014 PowerPoint:

As you can see, this checklist as it would stand today would look identical to the one published by the company in 2014 - of course, with the exception of needing to push the "Construction Start" phase back some years - or maybe even eliminating it altogether from the list. As this slide shows, the company still needs:

  1. BLM/ROW approval (recently denied).
  2. Finalizations of all purchase and sale agreements of water (which may take months, if not years, to draft and implement - and only if step 1 is finally approved/circumvented).
  3. Discussions with the MWD regarding use of the aqueduct (which we'll show may be a disaster in and of itself - and only if steps 1 and 2 are completed).
  4. Construction start (again, will require major financing and steps 1, 2, and 3 to be completed).

Don't forget, this is all just to complete "Phase 1".

In our last article, we showed that the company...