From press release to pocketbook

Posted on | June 24, 2010 | No Comments

Click on the image to be taken to NASDAQ.com

Cadiz, Inc today announced that the Santa Margarita Water District and Three Valleys Municipal Water District have agreed to stand as lead agencies in a review under the California Environmental Quality Act to evaluate the risks of reviving a previously discredited plan to mine Mojave Desert groundwater to serve the Southern Californian urban conurbation.

The share price responded with a jump of more than 14 per cent before declining.

No water has been produced by this 12-year-old scheme, however for the last year skillfully deployed press releases have made Cadiz a volatile and occasionally lucrative stock. It would take a SEC investigation to see if a run on the shares last year involving a privately secured endorsement from the Governor of California amounted to insider trading by directors at the expense of stockholders.

Today’s news about two Southern California water companies taking the lead in a state environmental review for the project comes on the tail of assurance by Cadiz to its shareholders in April 2009 that the review was already underway. By June 2009, Cadiz had backtracked, telling its shareholders, “the environmental review process is expected to begin shortly following the submittal of the Project description.”

If Cadiz has been stalling real review, it might be because of the abysmal grading its scheme to extract water from the desert received when the US Department of Interior performed an environmental review of the old (almost identical*) project a decade ago. After it was published, risks were seen as so high and rewards so marginal that the then sponsor, the Metropolitan Water District of Southern California, withdrew from the project.

This latest move involving two small water agencies is part of an ongoing attempt by Cadiz to get around Metropolitan’s veto by individually courting smaller agencies in Met’s service area. However, it would be naive to assume that any water will ultimately flow to the region because of the project. From the standpoint of Cadiz directors, it scarcely matters. As today’s share price jump indicates, with little more than some influential friends, well-timed press releases and even a discredited plan, it’s perfectly possible to bilk the market without actually producing a drop. Meanwhile, the rate-payers of Santa Margarita and Three Valleys are now where MWD was a decade ago: in line to foot high bills for an environmental review against compelling evidence that the project will still flunk.

UPDATE: Eric Spillman at KTLA blogs that Cadiz CEO Keith Brackpool was a likely companion on the trip of Mayor Antonio Villaraigosa to last year’s climate conference in Copenhagen. Via LA Observed. Villaraigosa worked for Cadiz and Brackpool before becoming Mayor of Los Angeles and the two have a long history traveling together, including jaunts to China and Iceland.  Recently, Cadiz has used company attorney Scott Slater as spokesman, keeping the jet setting political fixer Brackpool behind the scenes.

June 28: The Los Angeles Business Journal reports that Golden State Water will be among the local water agencies involved in the CEQA process. Golden State has been involved with Cadiz for a year, but  a press release maybe worth a bump on the market.

*To judge from publicity materials released by Cadiz, a key difference between the two plans is that the new iteration calls for pumping of the deep set waters of the carbonate aquifer rather than the alluvial fan of the target basin. Drawing water from the carbonate aquifer would make the pumping impacts almost impossible to monitor and therefore potentially far more destructive.

This post has been updated.

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