Financial Sarcasm Roundup for 09/29/14

Do you remember the last time I published something sarcastic?  If not, go back through my most recent blog articles.

Iron ore prices are heading down harder than ever as the leading low-cost producers force smaller competitors out.  Anyone who still buys the endless China bull story in the face of rising iron stockpiles is welcome to head down the tubes along with shuttered mining companies.  The remaining big producers will have no problems staying in business as market leaders.  Their pricing power should enable them to grab failed mines and grow their reserves.

Bill Gross' departure from the bond firm he founded caught major players by surprise.  I am not at all surprised.  He exited his firm on a high note as the US bond market remains at nosebleed valuations.  Seeking contrarian opportunities at a smaller firm enables him to build a new reputation after the bond market begins its inevitable slide.  Other company founders should remember that a firm they create is no longer theirs once larger investors steer it away from its roots.

I do track the "fin-tech" culture where financial startups launch.  A lot of them are focused on payments processing but there's only so much blood to squeeze from that stone.  These same startups will be among the many that vaporize (borrowing a word from one very prominent VC) because they can't reduce their burn rates.  I'll be in the market for some very cheap IP when these fin-tech darlings are on the street begging for spare change.  I'm certain I can figure out how to deploy their leftover tech after a bankruptcy court chops them up.

Catch me at Oracle OpenWorld this week if you want my sarcasm in person.  I have little time to spare while attractive women pursue me on the expo floor but I always have something cool to say.

Cap-Ex Ventures Ltd. (CPXVF) Seeks Iron In Quebec

Cap-Ex Ventures Ltd. (CPXVF / CEV.V) is focused on discovering iron in Quebec.  Their CEO has no education or background in mining.  Their previous CEO had some experience in mining but he was moved up to the board when Cap-Ex made a management services agreement with Forbes & Manhattan in December 2011.  I wonder about management changes that go from some relevant experience to zero relevant experience.  There's only one mining engineer with project experience on the team at present.

Their main projects are concentrated around Schefferville, Quebec.  None of their projects appear to have any NI 43-101 compliant confirmation of 2P reserves.  That's my main driver and I don't see it.  There is a railroad through their Block 103 and a major multinational steel firm has a plant nearby that could probably handle milling, so infrastructure is less of a concern with these projects.

They haven't posted any financial statements to their website as of today, so I had to search SEDAR for their annual statement dated August 31, 2012.  They had C$2.9M in cash on had at that time and had a net loss of C$4M.  Since then they raised a private placement in three tranches (C$3.5M, C$1.36M, and C$740k). This C$5.6M in cash should keep them around for another year, but it's hard to make more than a guess without seeing how their burn rate changes in subsequent quarterly financial statements.

Cap-Ex's share structure frankly scares me to death.  They've already issued almost 76 million share and they'll need a lot more capital to make it through further exploration before they even get to a production decision.  Shareholders can expect more dilution after future fundraising rounds.

Cap-Ex Ventures isn't for me because I need to see definite 2P reserves and solid management in a junior resource company.  It's interesting to note that the share price has crashed from about a buck to around US$0.27 today ever since Forbes & Manhattan entered the picture a year ago.  Nice work, folks (I'm being sarcastic).

Full disclosure:  No position in Cap-Ex Ventures Ltd. at this time.

Cardero Resource Corp. (CDY) Tries To Do Something

Cardero Resource Corp. (CDY / CDU.TO) is part of the Cardero Group.  Don't confuse the names.  I'll be talking about the junior explorer today and not its parent.  This company is out looking for coal, or iron, or something.  The thing with families of prospect generators is that they must move along quickly if they can't find anything worth mining at a given project.

The CEO knows his coal, so at least they put the right person in charge.  Their corporate structure is unique; they have separate wholly-owned coal and iron companies presumably to accommodate the properties they're exploring.  I don't often see that in a company that was itself created from a prospect generator parent.

Now, about those properties.  Carbon Creek is an aptly-named British Columbia coal deposit that is showing some progress.  They released a pre-feasibility report for that property in November 2012 and yet the share price has slightly declined since then (hint:  not a good sign of market confidence).  Read that study yourself.  It estimates the project's cash cost of production at $74/ton.  Their base case assumptions on what this product can earn in the world market might be optimistic.  Look at the EIA's data on sales prices of coal by mine size in the U.S. for 2011.  Cardero's cash cost is barely breaking even with mid-range mine sizes.  The spot coal price for the U.S. is currently under CDY's cash costs.  Maybe that's why the stock market's not impressed.  If they plan to sell the coal to non-U.S. markets where the spot price is higher, they'll have to build out the rail and power infrastructure at the site.

Check out their Sheini Hills iron project in Ghana.  They've got a local JV partner but that doesn't impress me much.  That partner's CEO is also running several other Ghana-connected companies, so perhaps he could explain how he can manage all those different entities.  Ghana currently ranks 64th on Transparency International's corruption index.  The political climate for a project is extremely important if it is to successfully avoid corruption or nationalization.

They've also got a Minnesota project.  They already have two 43-101 reports from January 2012 that conclude the two properties merit more work.  The good news is that their Q3 financial statement for 2012 shows over $10M in cash on hand as of July 31.  The bad news is that they also lost almost $3M that quarter.  They'll still be spending money to prepare the Carbon Creek project for production, so they'll need to raise more capital next year.  Existing shareholders should expect further dilution.

Cardero Resource Corp. is a risky bet on the viability of Canadian coal outside the North American market. It's also a bet on unproven resources in Ghana and Minnesota.

Full disclosure:  No position in Cardero Resource Corp. at this time.