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Pardee Resources: 4% Yield From Hard Assets And Upside To A Met Coal Recovery

Jul. 11, 2017 10:44 AM ETPardee Resources Company (PDER)25 Comments


  • Non-operated business model means earnings are very high quality.
  • 2016 appears to be the bottom of the coal market, suggesting upside to come.
  • 40% upside to sum-of-the-parts valuation.

Pardee Resources (OTCPK:PDER) is a unique company. It had its genesis in timber and mining fortunes in Appalachia and still owns many of those same assets today. The difference is, all those years ago, the founders realised that many of these businesses are incredibly cyclical, so they decided on a non-operating business model.

Thus, the company owns assets, but does not operate them, preferring to collect royalty and other income from their ownership without taking operating risk. This reduces the downside when the market for the commodities that are produced from their various land holdings decline. As an example, they collect royalties when coal or natural gas is produced from their lands, and stumpage fees when timber or pulpwood are cut. They also sell land for residential uses at higher per-acre prices, and have diversified into owning solar panels. They also own some California farmland that has been planted with premium table grapes by an operator, that should begin producing revenues this year. The company had a poor showing in 2016, primarily due to the state of the coal markets, as royalties on coal are its largest source of revenue and income, as it has significant landholdings in the Central Appalachian [CAPP] coal areas. The company has stuck with its non-operating strategy for generations, and has earned strong returns doing so. They pay a 4.25% yield, so there is a reasonable return on holding these shares even if no catalyst plays out, which is an important consideration for a tightly held microcap, as a takeover would be unlikely even in the event of severe undervaluation due to significant ownership by descendants of the founding families. That being said, a return on capital is only something useful if you're also getting reasonable value for your initial capital investment, so I will value the entire company as well. I believe a sum-of-the-parts valuation is appropriate here, as some of the assets have better long term prospects than others.

This article was written by

Safety In Value profile picture
Leader of Microcap Review
Analysis of underfollowed microcaps worldwide, plus arbitrage and net-nets

I look for companies with a margin of safety to their value, and I dislike downside risk. I subscribe to the first rule of investing: "Do not lose money."

I believe small and microcap stocks, as well as special situations, are the best place to look for value in the markets, as most people overlook these companies, making them more likely to be mis-priced. To exploit these opportunities, I have a subscription service with multiple microcap calls every month.

Associated with Seeking Alpha contributor "Canadian Income Investor"

Analyst’s Disclosure: I am/we are long PDER. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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