The Bank of Montreal (BMO) launched initial coverage on Cardero Resource Corp. (Stock Profile – TSX:CDU & NYSE-MKT:CDY), a Vancouver based small-cap mine development company focused on the Carbon Creek metallurgical coal deposit in N.E. British Columbia. Cardero owns a 100% working ownership in the asset. Cardero is rated Outperform based on valuation, near-term production and lower capital requirements. 

BMO’s estimated NPV (10% discount rate) of $686 million is 47.5% higher than the NPV stated in Cardero’s prefeasibility study. The target price of $0.45 per share assumes that Cardero will finance $237.5 million (50% of the project’s CAPEX) via an equity component at the current share price levels (est. $0.35). The other 50% is expected to be financed through debt. However, Cardero is pursuing multiple avenues for production financing that may not involve such substantial dilution.

According to BMO, the bankable feasibility study for Carbon Creek is underway. Capital costs of $475M or approximately $116/annual ton are near the bottom of comparable projects and when operational the Carbon Creek mine is expected to produce approximately 4.1Mtpa of metallurgical coal at full capacity. Initial coal production is anticipated by year-end 2014 or early 2015.

BMO’s research implies a C$0.80/share NPV (assuming 857.5 million shares o/s compared to 110 million currently issued) and is based on long-run pricing of US$175/mt FOB met coal. The bank’s $0.45 target price implies 0.6 x P/NPV, well below mid-cycle multiples of 0.9 x for producing coal companies.

Cardero trades the lowest of the coal group on P/NPV (both BMO’s base case and spot) and EV/t of reserves, and among the lowest on implied pricing.

To learn more about Cardero Resource Corp. – CLICK HERE.