BMO Research has given an initial outperform rating on Cardero Resources (TSE:CDU) (AMEX:CDY) as the small-cap company develops its Carbon Creek metallurgical coal deposit in northeast British Columbia.
The bank has an estimated net present value on the company, at a 10% discount rate, of $686 million - 47.5% higher than the net present value stated in Cardero's pre-feasibility study.
The firm's price target of 45 cents per share assumes Cardero will finance $237.5 million, or 50% of capex, at today's share price. Cardero says it is pursuing "multiple avenues" for production financing that does not involve this dilution.
The Carbon Creek project is expected to produce around 4.1 million tonnes per year of metallurgical coal at full capacity, with first coal anticipated as early as year-end 2014.
BMO's model assumes the project will start up in 2015, producing mainly mid-vol hard coking coal.
"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.
"BMO would expect development companies to trade below established producers; however, it is notable that Cardero trades in line with SouthGobi, a company with significant geopolitical risk and a selling shareholder factored into its stock price."
The bankable feasibility study for the Carbon Creek project is underway, with capital costs of $475 million, or $116 per annual ton, which are seen as near the bottom of comparable projects.