A Most Interesting Idea- Cadiz Land

Discussion in 'Stocks' started by stonedinvestor, Jul 19, 2010.

  1. The whole water is the next oil idea it seems burned out a long time ago. Nevertheless I always keep track of a west coast player in water- Cadiz for they have always appealed to me from a common sense point of view.

    Cadiz owns land that sits upon a whole lot of water.

    “The scientific debate about this aquifer system has always revolved around two questions: How deep is the water table beneath Cadiz, and does it extend way down beneath the alluvial soils into the underlying layers of carbonate rock?” said Dr. John Sharp, Carlton Professor of Geology at the University of Texas and one of the nation’s leading experts on limestone carbonates. “These layers of dolomite, sandstone and limestone rock were laid down by an ancient seabed and are highly permeable. We now have new test well data, pumping results from the wells, and dispositive video evidence showing huge quantities of water flowing like a river through cavities 1,000 feet beneath the ground,” said Sharp, who reviewed the CH2M Hill findings.

    That sound you heard was stoney's ear's pricking up!

    Those referenced CH2M findings was a recent thorough report done by internationally respected environmental firm CH2M. The comprehensive year-long study measuring the vast scale and recharge rate of the Cadiz aquifer system. The study, which was presented at a conference of the Association of Ground Water Agencies and American Ground Water Trust, describes a groundwater basin consisting principally of an alluvial and carbonate aquifer ranging in size between 17 and 34 million acre-feet, a volume of water larger than Lake Mead, the nation’s largest surface reservoir.

    That sound you heard was stoney dropping his pen.

    Based on this study of natural recharge in the aquifer system, Cadiz Inc. (NASDAQ: CDZI) will develop a groundwater management plan providing for the safe long-term annual withdrawal of 50,000 acre-feet of water each year, an amount that can sustainably supply the total water needs of 400,000 Southern California residents....

    So what we have here is a refillable cup of water: Cadiz can provide water for 400,000 homes and have the same amount of water the next year... To a parched state like California, that's got to be appealing and to a stock stuck at $12 for a year perhaps the ignition finally to a nice run.

    Over the years Cadiz has been held back by political forces in Colorado and CA; farmers, land trusts and various states agencies and rules governing watersheds etc.( Now through a clever trick of following railway lines Cadiz has gotten around a lot of those State obstacles for their pipeline and Finally looks to be on the right track.)

    “I can tell you from 43 years in this business, I have never seen a test well as productive as this one,” said Bob Ereth of Layne Christiansen, whose firm conducted the field tests.

    According to the findings, the aquifer system is fed by a watershed spanning some 1,300 square miles, an area nearly three times the size of the City of Los Angeles. Rain and snowmelt in nearby mountains filter deep beneath the earth’s surface, where it reaches the water table and slowly percolates to the valley floor, finding a natural confluence in the Cadiz Project area. According to the findings, this annual recharge into the aquifer ultimately migrates further downhill where it is lost to evaporation through nearby salt flats.

    The bear case is that the politics is just too much, the CEO is a bit of a character and has kept this company afloat for years without actually selling a drop of water.
    It appears the Govenator Arnold is in favor which is a plus. Diane Feinsteine has been against since 2002 when this proposal was rejected.

    Here are some bullet points from a 2009 LA Times negative piece on Cadiz-

    -Keith Brackpool continues to attract political sycophants happy to attest to his wisdom in the ways of water policy -- while they accept campaign contributions and consulting fees from him and his company.

    -In the past his posse has included ex-Gov. Gray Davis and Los Angeles Mayor Antonio Villaraigosa. Now he has added Gov. Arnold Schwarzenegger, who last week publicly endorsed the scheme as "a path-breaking, new, sustainable groundwater conservation and storage project."

    -The endorsement was embedded in an announcement Cadiz issued Friday, saying it executed letters of intent with four Southern California municipal water agencies to jointly investigate reviving the water scheme, which was rejected by the Metropolitan Water District seven years ago.

    -Curiously, the release didn't identify the four public agencies.
    So we're left with a company headed by a man with political juice making a deal with four unidentified public water agencies to revive a $200-million project that was already shelved once.

    - Brackpool, 51, Cadiz's chairman and chief executive, The Times has pointed out that in 1983 he pleaded guilty in London to criminal charges that included dealing in securities without a license.

    >>> Now from my point of view dealing in securities w/o a license is no big deal, most folks I've met who do this are much better than those with licenses. That's not really a CEO takedown. The company has the land and now we know it has the water... will they ever be able to turn on the taps?

    I need to flesh out the railroad tracks with water pipe access angle because it was just told to me at a bar but I believe that to be true.

    As to not telling the names of the concerned parties... The LA times should of waited a year-three of them have since come forward -
    (#'s1 &2)
    June 24, 2010 8:30 AM EDT
    Santa Margarita Water District Commits to Lead Environmental Review

    LOS ANGELES--(BUSINESS WIRE)-- Today Cadiz Inc. (NASDAQ: CDZI) announced that two Southern California water agencies have approved agreements to proceed with the Cadiz Water Conservation & Storage Project (“Cadiz Project”) and participate in the Project’s environmental review. The Boards of Directors of Santa Margarita Water District (“Santa Margarita”) and Three Valleys Municipal Water District (“Three Valleys”), which together serve over 650,000 customers in parts of Orange and Los Angeles Counties, have unanimously approved agreements that commit funds to an environmental review of the Cadiz Project and also grant the agencies the right to acquire a firm annual supply of water once the environmental review is complete.

    (#3)June 28, 2010 8:30 AM EDT
    Water Utility Serving 800,000 People Approves Agreements to Proceed with the Project and Participate in the Environmental Review

    LOS ANGELES--(BUSINESS WIRE)-- Today Cadiz Inc. (NASDAQ: CDZI) announced that the Golden State Water Company (“Golden State”), a subsidiary of American States Water (NYSE: AWR) and California’s second largest investor-owned water utility, has executed an Option Agreement to acquire conserved water and related storage capacity in the Cadiz Water Conservation & Storage Project (“Cadiz Project”), joining Santa Margarita Water District (“Santa Margarita”) and Three Valleys Municipal Water District (“Three Valleys”), which approved similar agreements last week.

    >>>> ok lets wrap this up. In the words of Santa Margarita's District Board President- “After several months of due diligence, we have determined that the Cadiz Project represents a significant and sustainable new water supply opportunity for Southern California that can be obtained without harming other users or the environment,” “By moving ahead with the Project, we are working to drought-proof our agency, ensuring both a steady supply and a reliable bank of storage for the long-term in an environmentally responsible way. We look forward to taking the lead in the environmental review.”

    >> The way I see it Cadiz has lured some very thirsty and big players to the table for this final push of a very good idea. This water is being evaporated and wasted & now some other folks are taking the lead and pushing this through the tough environmental process all for the right to purchase the water a good rate. Cadiz is actively signing up other utilities and with limited supplies available, this looks to be domino of good news for Cadiz-- after all, they still stand to prosper by $500 million or more yet some others are now taking care of some costs.

    *CURRENTLY A TOP % LOSER! DOWN 8% @ $12.27 on 43,000 shares... I would guess this is one player leaving and not some bad news brewing and a pretty nice buying opportunity. ~stoney
  2. ammo


    this water play could be a bonanza if the gulf oil spill seeps into other shallower water tables
  3. Agreed and we must assume that has happened. I'm worried about the land fill aspect of this as well groundwater is at risk. Water everywhere is at risk with this record heat.

    I found a mention of the railroad tracks... in the LA Business Journal.

    Cadiz has several things going for it. For one thing, the project's backers point out that the state has a dwindling supply of water.

    Also, the company is touting potential environmental benefits of its new plan. It would transfer significantly less water than under the previous proposal. And the company claims the project would reduce the need to pump water from the ecologically stressed San Francisco Bay-Sacramento River Delta region to Southern California.

    What's more, Cadiz and its politically connected founder and chief executive, Keith Brackpool, have won support from Gov. Arnold Schwarzenegger
    and many Democratic elected officials.

    "When it comes to water in California, it's all about politics," said Neil Berlant, portfolio manager of PFW Water Fund, who has tracked Cadiz for several years as an independent analyst. "Whether this project succeeds will depend on how effective Cadiz is at playing the political game."

    But like the previous proposal, this plan is likely to face fierce opposition not only from Feinstein, who has been a champion of Mojave Desert preservation, but also from environmentalists. Their opposition helped sink the previous proposal seven years ago, and they contend the new plan would draw down the aquifer and harm the desert ecosystem.

    "This appears to be mining groundwater from the aquifer system," said Simeon Herskovits, senior environmental attorney with Advocates for Community and Environment in Taos, N.M., who was the lead environmental attorney opposing the earlier Cadiz project. What's more, "because they would be removing moisture from the soil on the lake bed, it could cause tremendous air pollution problems from frequent dust storms."

    Political lessons

    The last attempt by Cadiz was a 50-year water deal with the Metropolitan Water District of Southern California that could have netted the company up to $1 billion.

    Under that deal, Cadiz would have stored up to 1.5 million acre-feet of excess Colorado River water in its remote desert underground aquifer that could be released to the MWD in dry years through a $150 million, 35-mile pipeline built by MWD and Cadiz. The water would then flow through the Colorado River Aqueduct, which is owned and operated by the MWD, to urban customers.

    But the plan became controversial because the company would also have been allowed to sell up to another 1.5 million acre-feet of native water from the aquifer to the MWD in any given year. (One acre-foot is equivalent to 326,000 gallons, enough to supply a typical household of four for a year.) Environmentalists contended that could drain the aquifer, cause a collapse of the desert floor and destruction of the ecosystem.

    As he sought approvals amid mounting opposition, Brackpool cultivated an extensive network of political contacts. He donated more than $300,000 to the political coffers of then Gov. Gray Davis and was appointed as Davis' chief water adviser. He also hired a number of high-profile consultants, including current Los Angeles Mayor Antonio Villaraigosa, who was then a former assemblyman and preparing his run for the Los Angeles City Council, and former U.S. Interior Secretary Bruce Babbitt. Susan Kennedy, who now serves as Schwarzenegger's chief of staff, was also a company consultant.

    There were also financing concerns. Cadiz had assumed substantial amounts of debt for farming operations both on the property and elsewhere. As a result, MWD officials were concerned that Cadiz would not be able to fund its portion of the pipeline.

    In October 2002, the MWD board narrowly voted to reject the project, crashing Cadiz's stock.

    Tim Shaheen, Cadiz chief financial officer, said debt was no longer a significant problem after the fanning subsidiary's assets were sold out of bankruptcy. The first substantial debt payments the company now faces aren't until 2013.

    In its most recent quarterly filing, the company acknowledged it only has enough working capital to last 12 months. After that, Cadiz will need to raise money, seek loans or cut operating expenses!

    Cadiz is hoping that the state's need for more water supplies will trump all other political and environmental concerns. In recent years, a series of agreements and environmental restrictions have put increasing amounts of water off-limits throughout California. A three-year statewide drought has further stressed water supplies.

    "This is causing people to redouble their efforts and look for sustainable sources to add water to the grid," said Scott Slater, general counsel for Cadiz.

    Outside analysts agreed that water shortages in California are a major difference between now and seven years ago.

    "Cities and water agencies right now are very concerned about dire water shortages," said Larry Kosmont, an economic development consultant who served on the MWD board when the Cadiz deal first surfaced in the mid-1990s. "Water prices are going up everywhere and we're seeing mandatory conservation measures spreading. If there's a resource out there that can help defray
    some of this, you bet cities and water agencies will look at things differently."

    Slater would not name the four municipal water agencies that have signed letters of intent with Cadiz, saying that information would become public as the environmental review process moves forward, perhaps as early as this fall. The four municipal agencies serve a total of 2 million customers, according to the Cadiz announcement.

    The Los Angeles Department of Water & Power, the largest municipal water agency in the state, has not signed a letter of intent with Cadiz, a DWP spokeswoman said in an e-mail to the Business Journal last week.

    The Cadiz announcement identified the sole private company in the deal as Golden State Water Co., which provides water to 1 million customers, mostly in Los Angeles, Orange and San Bernardino counties.

    ****The water would be pumped through a 44-mile underground pipeline on a right-of-way that Cadiz recently leased from the Arizona California Railroad. The pipeline would connect to the Colorado River Aqueduct, where it would be transported to urban customers. MWD spokesman Bob Muir said the agency's board would consider a Cadiz proposal to move water through the aqueduct provided there is enough capacity and agreement is reached on a price.

    Cadiz executives hope that the smaller draw-downs would alleviate some of the concerns from environmentalists.

    "The massive withdrawals associated with the Cadiz/MWD plan were definitely a challenge," Slater said. "This plan has nothing like that."

    The rise in the company's stock price is an indication that the plan looks promising to investors.

    "This is a more reasonable project with more reasonable costs, so the markets have concluded that there's a much higher chance of this project going forward," said Ryan Connors, an investment analyst with Boenning & Scattergood Inc. in Philadelphia.

    Cadiz's proposal was rejected years ago. But now there's a water shortage, and the revived project is much smaller.


    The company needs environmental approvals and an agreement with the Metropolitan Water District to use its aqueduct. Then Cadiz must negotiate with participating water agencies.