Cardero Gets Advance Payment For Pampa De Pongo

VANCOUVER —Cardero Resource (CDU-T, CDY-X) is getting a US$2-million payment for its Pampa de Pongo iron ore project ahead of schedule from Chinese buyer Nanjinzhao. The total purchase price of the project is US$200 million.

Cardero president Hendrik van Alphen says while there were a lot of naysayers of the deal, “the payment to me gives confidence that they want to complete the transaction.”

Nanjinzhao is making the advance payment because it wants to get a head start on geotechnical drilling of the property.

The money will come out of the second of two scheduled payments. The first, US$10 million, is due March 17 and will see Cardero transfer title of the property to Nanjinzhao.

The second, US$190 million, is due Sept. 17. Now, however, the companies will revise that figure down to US$188 million.

On why Nanjinzhao didn’t elect to make the first payment earlier and receive title of the property before it begins geotechnical drilling, Alphen says his impression is that the Chinese company is subject to a fairly rigid approval process when it comes to moving money.

“From the very beginning they said they would stick with the dates set out in the contract,” Alphen says. “This is a very serious group that wants to complete the transaction.”

The market appeared to agree. On news of the advance payment, Cardero’s share price jumped 43¢ to close at $2.11.

Cardero optioned the property from Rio Tinto (RTP-N, RIO-L) in 2003 for $500,000 and subsequently completed a scoping study on the iron oxide-copper-gold project in fall 2008.

It outlined a 24-year mine life with production of 15 million tonnes of iron ore pellets a year from an inferred mineral resource of 863 million tonnes grading 41.3% iron, 0.07 gram gold per tonne and 0.1% copper.

The scoping study estimated a net present value of US$4.1 billion and an internal rate of return of 20% (after-tax, discounted at 8%).

Pelletized iron would be shipped to overseas customers via the San Juan deep-water port, only 38 km away.

Not long after Cardero completed the scoping study, Nanjinzhao made its US$200-million offer for the project.

Although Rio Tinto had a right to match the deal, it elected not to.