Cardero Resource Corp. (fka CDYCF)

[diannedawn]

This guy claims:
"Valuation

The current enterprise value is only 14% of the estimated NPV of $633 million, while similar comparable sales transactions on the company's mineable coal reveals a similar discrepancy between price and value. As it stands today, Cardero's stock price is the lowest it has been in 9 years, while the prospects have never been better. We have a company with basically no debt, good management, and presence in a prolific mining region that has undergone heavy consolidation by the big boys in the area.

Valuation was looked at using three methodologies: Proven and Probable Reserves, NPV, and Measured and Indicated resources.

Proven and Probable Reserves

In October of last year, Xstrata bought Cline's Lossan property. The deposit itself contained 186 million tons in the measured and indicated category but of that amount, only 14 million was estimated to be mineable. The Lossan deposit consists of about 41% PCI coal and 59% coking coal. Although there is a mixture of PCI coal at Carbon Creek, it is a mix with higher quality semi-soft coal as opposed to Lossan, of which 41% was classified as PCI.

This is as good a comparable sales transaction as any, considering the coal is of similar quality and both are located in the Peace River Coalfield. When the Lossan deposit was taken out, coking coal prices were around $280 or so, which worked out to roughly $2.86 per mineable ton in the ground for Lossan. Since then, met coal prices have come down close to 40%, making it far from reality as a starting point. Factoring in that the great commodities run of the past 10 years or so could be coming to an end (or at least stalling out), using the current met coal price of around $170 seems like a good place to begin.

Under this scenario, the recent $170 a ton price gives us a per mineable ton value of around $1.70 ($2.80x0.60). If we multiply this figure by Cardero's 75% interest of 121 million proven and probable reserve tons, we end up with a value of about $155 million. Divide this by the company's 131 million shares (after private placement) and we end up with $1.20 per share versus the current share price of $0.53 cents.

Let us make an assumption that demand from China and others really falls off a cliff and the price drops a further 30% before settling at around $1.15 per ton of proven and probable reserves. At this price, we get a valuation of around $105 million or $0.80 per share. Assuming this case, we still have a potential upside of over 50%. As it stands today, Cardero's coal in the ground is being priced at only $0.73 per ton of proven and probable reserves given its enterprise value after adjusting for the soon to be increased share count.

Net present value

If we use Cardero's base case NPV of the project which assumes long-term met coal pricing of $174 a ton and uses a discount rate of 8%, we get $633 million. How much would a potential acquirer offer to take Cardero out? What is an acceptable discount to NPV? 25 percent? 50 percent? If we use a 25 percent discount, this would give us an acquisition price of $356 million (Cardero's 75% interest and the 25% discount) or about $2.70 per share.

If we use the low case NPV for the project, which assumes long-term met coal pricing of $143 a ton and uses a discount rate of 8%, we get $191 million. If we take a 25 percent discount from this, we end up with an acquisition price of $107 million or close to $0.82 a share. Not nearly as attractive but still a potential upside of close to 55%.

Are the discount rates used too low? Are the long-term coal prices too optimistic? You can play around with these numbers until the cows come home but under this method and these assumptions (which I believe are quite conservative) an adequate margin of safety exists considering the enterprise value right now is just 14% of the NPV.

Measured and Indicated Resources

When Xstrata purchased Talisman Energy's Sukunka deposit in March of 2011, it did so at a price of $500 million or $2.12 for each of the project's 236 million tons in measured and indicated resource. If we apply the 40% or so haircut that coking prices have taken since then and multiply it towards Cardero's 75% interest in Carbon Creek's 468 million measured and indicated tons, we get a figure of around $445 million for the deposit or around $3.40 a share.

The simple chart below reveals several of the acquisitions in the Peace River Coal field and the prices paid.

Acquiree M&I tons Acquisition price Reserves Price/M&I Price/Reserve
Western Coal total 342 $3.3b 189.7m $9.64 $17
Western Coal Canada 242 ------- 142m ------ $23
Cline Mining 186 $40m 14m $0.21 $2.85
Grande Cache 346 $1b 137m $2.89 $7.29
Sukunka 236 $500m ------- $2.12 ------
Cardero 468 $66m EV 121m $0.19 $0.73

Cardero's current enterprise value is around $66 million, based on their recent private placement of 22.5 million shares and reflecting the recent $11 million in debt financing. The Price/M&I and Price/Reserve are based on the adjusted market capitalization as well as the 75% interest in the coal reserves.

We have to take the figures above with a grain of salt as when these deposits/companies were acquired, coking coal prices were much higher as well as the outlook was much more favorable. Even with these factors taken into account, Cardero's measured and indicated tons are being valued at only $0.19 cents (75% ownership) and its proven and probable reserves at only $0.73.

All told, we end up with a very wide valuation range with these techniques, but if the assumptions used are in the ballpark of reality, an estimated intrinsic value is perhaps between $0.82 on the very low end to $3.40 or so on the high end. I've always liked the Buffett quote that if you actually have to sit down and calculate the value it's just too close. The value should jump up at you.

While market sentiment cannot be ignored entirely, I'm prepared to wait for price and value to come into some sort of equilibrium from the heavily discounted price the shares are currently fetching."

http://seekingalpha.com/article/985141-another-interesting-speculation-in-the-micro-cap-coal-space?source=yahoo

the only comment is more telling...
"I think the lack of comments on this excellent article shows just how under the radar CDY is, which helps explain how it could have drifted down so far under its worst case intrinsic value."

Does it MATTER what something's "value" is
if no one wants to buy it???

NOPE!
:(