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Cardero Resource has made good on a promise to put out a new technical report for its Carbon Creek joint venture project. Carbon Creek underwent a significant change back in June when Cardero withdrew from a coal lease that made up part of the project, rendering a previous prefeasibility study invalid.
On Tuesday, Cardero Resource (TSX:CDU) made good on an earlier promise to put out a new technical report for its Carbon Creek joint venture project in British Columbia’s Peace River region.
According to the company’s release, Carbon Creek currently holds 290 million tonnes of metallurgical coal in measured and indicated resources and 161 million tonnes in inferred resources. In total, 66 percent of the measured and indicated resources has been pegged as “potentially surface mineable,” while 63 percent of those resources and 85 percent of the inferred resources have been classified as hard coking coal.
Cardero holds a 75-percent interest in the joint venture project with the Carbon Creek Partnership.
Back in June, the project underwent a significant change when Cardero withdrew from a coal lease between itself and the Peace River Partnership. Certain freehold coal rights pertaining to that lease formed part of Carbon Creek at the time, so the withdrawal meant that the size of Carbon Creek was reduced.
That meant that a prefeasibility that had already been completed for the project was rendered invalid.
No doubt that must have been a hard hit to take. However, in light of struggling metallurgical coal prices, the company reasoned that the $12.5 million in advance royalty payments that would have been required to keep the additional leases, was “simply not justifiable and not in the best interests of Cardero shareholders.”
“Obviously, the downturn in the metallurgical coal market has been severe and sustained, with Cardero’s market capitalization falling relative to the commodity,” said Cardero CEO Henk Van Alphen in a June statement. “While we await a recovery in the sector, Cardero is seeking to acquire additional assets, both within the metallurgical coal space and in other commodity sectors.”
To be sure, the market hasn’t been kind to coal companies, and Cardero definitely hasn’t been spared. The company’s share price has fallen over the past five years, losing 80 percent last year alone and dropping another half a penny to $0.035 following today’s news.
That said, the company has certainly been keeping busy. In September, it negotiated a US$1-million increase in its existing long-term credit facility to secure 13 applications for coal licenses contiguous to Carbon Creek, expanding the joint venture by 77 percent, to 30,390 hectares.
It’s also worth noting that Tuesday’s resource estimate considers 23,600 meters of additional drilling from 2012 that were not included in the Carbon Creek prefeasibility study completed that year. Still, the estimate for the new project falls short of the original — according to the prefeasiblity resource classification still listed on Cardero’s website, the earlier project included 468 tonnes of metallurgical coal in measured and indicated resources and 232 million tonnes in inferred resources.
British Columbia’s Peace River region hosts a number of metallurgical and thermal coal projects, including projects held by Teck Resources (TSE:TCK.B) and HD Mining and Anglo American (LSE:AAL). In April, Walter Energy (TSX:WLT,NYSE:WLT) announced that it would idle its mines in the area due to weak coal prices.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.