Below I have reposted an article profiling Cardero and its Growth Potential from 12/9/10 posted for subscribers of "Ticker Trax" :
In keeping with the theme of managing risk/reward, I am introducing a company that trades below its cash and investment value yet provides significant leverage to various popular commodities.
Cardero Resource Corp. (T.CDU High of $1.60 since profiled to Ticker Trax subscribers / Amex CDY $1.60) cardero.com
Snapshot: A cash-rich resource company with iron ore, titanium and copper projects. And large investments in companies associated with gold, silver, base metals, rare earths and uranium.
Financials as at July 31st
Net Value of Cash & Investments less debt = $1.39/share
Cash $63 million ($1.08/share)
Investments $46 million ($0.78/share)
Accounts payable $800k (-$0.01/share)
Income Tax $27 million (-$0.46/share)
Shares outstanding: 58.6 million
Since financials were last filed for the end of July, Cardero has invested another $9.5 million. Those additional investments are reflected in the total below. Of particular interest, pay attention to the investment in Coalhunter Mining. It appears this could be IPO’d early 2011 and my research indicates that there is tremendous growth potential there (based upon value of publicly-traded peer companies). I have detailed that investment near the end of today’s report (written Wednesday of this week and published Thursday).
Current market value of the investments is as follows:
-- International Tower Hill (TSX: T.ITH) - 4.6 million shares - $36 million
-- Trevali Resources (TSX: T.TV) - 7 million shares - $10 million
-- Wealth Minerals (TSX: V.WML) – 5.0 million - $3 million
-- Dorato Resources (TSX: V.DRI) - 2.2 million - $3 million
-- Coalhunter Mining (Private) – 12 million - $3.6 million
-- Kria Resources (TSX: V.KIA ) – 15 million - $3 million
-- Misc. Investments - $2 million
Cardero (TSX: T.CDU, Stock Forum) and (AMEX: CDY, Stock Forum) invested $9.5 million of its cash but current value of the investments is $60 million or $14 million higher than last quarter. This is a net gain of another $5 million that moves their cash and investment liquidation value (after accounting for income tax payable) to approx. $1.50/share.
Cardero "GROWTH POTENTIAL"
The downside risk on this stock is controlled by the pure value of cash and investments. The growth will not only come from those underlying investments, but (hopefully) from two key projects that carry zero value right now (because the stock trades below its liquidation value).
1) Pampa el Toro Iron Sands - Peru
Cardero has significant experience in working with China. In 2009 they negotiated the sale of their iron sands project in Peru for $100 million. Prior to the financial collapse, it was estimated this could be worth almost twice that. Pampa el Toro is their remaining iron sands project and in the last set of financials, they stated the following:
During the quarter April 30, 2010, and to June 10, 2010, the Company was primarily focussed on promoting the Pampa el Toro Iron Sands program as a viable project for the production of iron ore concentrate and/or pig iron to serve the needs of the PRC (People's Republic of China).
At the present time, the Company is actively engaged in securing a partner who can help move the project to a commercial stage and, although the Company is presently in discussions with interested entities (including conducting property visits), there can be no assurance that it will be able to do so.
The most important statement we could see is that they are actively marketing it in China and are also looking for a development partner (or outright sale).
The company is controlling costs and has only committed to spending $3 million on the project in 2010. This will continue advancing it to the stage of production or sale. They have done extensive work already and spent millions. The property consists of two dune fields - Pampa el Toro and Carbonera. [The one year chart below is for iron ore delivery in China].
Cardero has 12,100 hectares in four areas that are owned 100% and 3,600 hectares in two areas that are held under option from an arm's length private Peruvian company. The Iron Sands project is located near the city of Nazca in the desert coastal region of southern Peru approximately 45 kilometres northeast of the port of San Juan and close to the large Marcona iron mine
In addition, Cardero intends to complete the metallurgical test program presently under way for the recovery of vanadium and titanium from the smelter slag produced in the melting test, and believes that the results of this testing will add significant value in terms of potential high-quality pig-iron and titanium-vanadium co-products. This testing will be completed in Q3/10.
Because the company trades at a discount to net cash/investments, this large iron sands project is deemed worthless by the market. This makes no sense - but creates huge opportunity. Obviously there can never be a guarantee they find a buyer or development partner from China, but if they do, the upside potential from these levels is very significant.
2) Ferro-titanium TiTac and Longnose Projects - Northern Minnesota
This is another very promising project that oddly carries zero value by the market. August 31st they released drill results and one hole in particular reported a very significant 532 metres of iron, titanium, and copper. The copper credit (grade) appears low but it appears the iron and titanium (14.8% combined grade) is quite good. In addition to the big hole, almost all their other assays reported very encouraging numbers.
Both projects were previously subject to historical exploration and according to BHP, were the largest known ilmenite (FeTiO3) resource in North America. Cardero has completed a total of 36 diamond drill holes at the projects for a total of 11,506 metres, with significant iron-titanium and copper mineralization being intersected in the majority of the holes at both projects. Their winter drilling program will start up again before year end.
This means that their large iron sands project in South America is valued at zero, and now this property in Minnesota is also worth zero (or in theory, a negative value). If this was a standalone project in any other public company, these results could generate substantial activity.
It’s an extremely strange situation sitting ride under our nose that 99% of investors choose to ignore – or know nothing about.
The Coalhunter Investment
Cardero as I showed near the beginning has invested in several public companies. Their primary investment is International Towerhill (ITH.T), a very large gold project in Alaska that will eventually go into production or be bought out. While the other investments also hold strong growth potential, the CoalHunter project is worth following closely.
In June Cardero secured a 49.5% interest in Coalhunter Mining for $3.6 million (12 million shares at $0.30). The company’s Chairman is Alan Johnson, a mining executive with extensive experience in the Canadian and international coal business. He was a former Member of Canada’s Parliament and Chair of its Energy, Mines and Resources Committee and also managed the Coal Division for Gulf Canada. Also involved is Michael Hunter. A co-founder of First Coal Corporation, he was instrumental in assembling the largest land position of any coal company in BC.
Coalhunter’s primary asset is Carbon Creek. The project is located in the Peace River coal fields of NE British Colombia. Ownership has been disputed since 1929 (the last round was 2004 to 2010), but it was eventually awarded to Coalhunter in 2010.
The property has been extensively drill tested and of particular importance, it is a (high demand) soft coking coal with excellent recovery and low ash. There is plenty of room for expansion but drilling has confirmed 67 million tonnes recoverable.
Carbon Creek is located in a known metallurgical coal field with excellent power and transportation access. Development and sales contracts are planned for 2011 with production in 2012. Planned IPO in early 2011. Estimated costs to production, $100 million.
----------------------- 9 december 2010 16:08
When we consider the strength in resource stocks since early September, we see that it is not often one can find a company still trading at spring 2010 levels, let alone the same price it was in mid-2009. Cardero is a very attractive risk/reward scenario with very good liquidity in the $1.20’s per share.
That is it from me, Danny Deadlock. By the way, I own 15,000 Cardero shares, purchased this past summer. Thom Calandra does not own any shares of Cardero.
Thom Calandra: “Thank you, Danny, for bringing something into the Ticker Trax mix that offers our subscribers a fresh perspective.”