In a significant move for water supply in California, Cadiz Inc. (NASDAQ: NASDAQ:CDZI) has struck a deal with Golden State Water Company to provide water to the City of Barstow. The agreement, announced on Wednesday, will see Golden State amending and exercising a 2010 Option Agreement to purchase 5,000 acre-feet of water annually from Cadiz's Water Conservation, Supply and Storage project.
Under the new terms, Golden State will pay roughly $1,450 per acre-foot in 2024, with this price subject to annual adjustments based on a pre-agreed index. Additionally, Golden State secures the option to acquire carry-over storage at the project for $1,500 per acre-foot, along with a yearly management fee of $20 per acre-foot.
Both parties have committed to actively seek federal, state, and local grants that could subsidize the capital costs associated with the development of the necessary pipeline and facilities. Any such grants obtained by public water systems would be deducted from the water's delivery price to Golden State.
Cadiz expects to net about $850 per acre-foot after inflation adjustments for the water it conserves and delivers through the Northern Pipeline, which has a 25,000 acre-foot per year capacity. The current agreements, including the one with Golden State, are projected to utilize 60% of this capacity.
The company also holds option agreements with several public water systems and is in discussions to finalize the terms for water delivery from the Northern Pipeline. The financial inflow from the project will commence once the prerequisites are fulfilled, construction is completed, and water distribution begins.
This deal is a part of Cadiz's broader strategy to enhance water supply reliability in California by leveraging its existing infrastructure. The Northern Pipeline, originating at Cadiz's property and stretching 220 miles to Wheeler Ridge, is a critical component of this plan.
The information for this article is based on a recent SEC filing.
InvestingPro Insights
In light of Cadiz Inc.'s (NASDAQ: CDZI) recent agreement with Golden State Water Company, investors are closely monitoring the company's financial health and market performance. With the deal set to increase water supply reliability in California, it's important to consider the company's financial metrics and analyst expectations.
InvestingPro data shows a market capitalization of $174.12 million, indicating the size of Cadiz in the industry. Despite a significant revenue growth of 75.96% in the last twelve months as of Q3 2023, the company's gross profit margin stands at a negative 26.85%, reflecting challenges in profitability. The price of Cadiz's stock, as of the previous close, was $2.61, which is near its 52-week low, suggesting that the market may currently undervalue the stock in light of its growth potential and recent business developments.
Two InvestingPro Tips shed light on the company's current situation. Analysts do not anticipate Cadiz will be profitable this year, aligning with the reported negative operating income margin of -1086.5%. However, as a niche player in the water supply industry, Cadiz's strategic agreements, like the one with Golden State, could bolster its market position. Moreover, the company's liquid assets exceed its short-term obligations, indicating a degree of financial resilience in meeting its immediate liabilities.
For readers interested in a deeper analysis, InvestingPro offers additional insights on Cadiz Inc., including more InvestingPro Tips. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to a wealth of information that can inform investment decisions.
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