Cardero Resource Corp. - Exhibit 99.2 - Filed by newsfilecorp.com
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| CARDERO RESOURCE CORP. |
| Form 51-102F1 |
| Management’s Discussion and Analysis |
| For the three months ended January 31, 2014 |
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INTRODUCTION
This Management Discussion and Analysis (“MD&A”) for
Cardero Resource Corp. (“Cardero” or the “Company”) for the three month ended
January 31, 2014 has been prepared by management, in accordance with the
requirements of National Instrument 51-102, as of March 13, 2014, and compares
its financial results for the three months ended January 31, 2014 to the three
months ended January 31, 2013. This MD&A provides a detailed analysis of the
business of Cardero and should be read in conjunction with the Company’s audited
consolidated financial statements and the accompanying notes for the years ended
October 31, 2013 and October 31, 2012. The Company’s reporting currency is the
Canadian dollar and all amounts in this MD&A are expressed in Canadian
dollars unless otherwise noted. The Company reports its financial position,
results of operations and cash-flows in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
Forward-Looking Statements
This MD&A contains forward-looking statements and
forward-looking information (collectively, “forward-looking statements”) within
the meaning of applicable Canadian and US securities legislation. These
statements relate to future events or the future activities or performance of
the Company. All statements, other than statements of historical fact, are
forward-looking statements. Information concerning mineral resource/reserve
estimates and the economic analysis thereof contained in preliminary economic
analyses or prefeasibility studies also may be deemed to be forward-looking
statements in that they reflect a prediction of the mineralization that would be
encountered, and the results of mining that mineralization, if a mineral deposit
were developed and mined. Forward-looking statements are typically identified by
words such as: believe, expect, anticipate, intend, estimate, postulate, plans
and similar expressions, or which by their nature refer to future events. These
forward looking statements include, but are not limited to, statements
concerning:
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the Company’s strategies and objectives, both generally and specifically in
respect of the Carbon Creek Metallurgical Coal project in north-east British
Columbia (“Carbon Creek”);
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the anticipated completion of a review of, and a determination to proceed
with, preparation of a new, restated and optimized prefeasibility study for
Carbon Creek;
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the potential for a production decision to be made concerning Carbon Creek,
the potential commencement of any development of a mine at Carbon Creek
following a production decision and the potential for any production from the
Carbon Creek deposit;
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the timing of decisions regarding the timing and costs of exploration
programs with respect to, and the issuance of the necessary permits and
authorizations required for, the Company’s ongoing exploration programs on its
properties;
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the Company’s estimates of the quality and quantity of the resources and
reserves at its mineral properties;
| Cardero Resource Corp. |
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| Form 51-102F1 |
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| Management Discussion & Analysis |
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| Three months
ended January 31, 2014 |
Page 2 |
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the timing and cost of any proposed future work with respect to Carbon
Creek, including with respect to the preparation of a bankable feasibility
study in respect thereof;
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general business and economic conditions;
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the Company’s ability to meet its financial obligations as they come due,
and to be able to raise the necessary funds to continue operations;
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the anticipated amount and timing of the receipt of a tax refund from the
BC government; and
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the Company’s ability to negotiate acceptable option/joint venture or sale
agreements for some or all of its “non-core” properties.
Although the Company believes that such statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Inherent in forward looking statements are risks and uncertainties
beyond the Company’s ability to predict or control, including, but not limited
to, risks related to the Company’s inability to raise the necessary capital to
be able to continue in business and to implement its business strategies, to
identify one or more economic deposits on its properties, variations in the
nature, quality and quantity of any mineral deposits that may be located,
variations in the market price of any mineral products the Company may produce
or plan to produce, the Company’s inability to obtain any necessary permits,
consents or authorizations required for its activities, to produce minerals from
its properties successfully or profitably, to continue its projected growth, and
other risks identified herein under “Risk Factors”. The Company cautions
investors that any forward-looking statements by the Company are not guarantees
of future performance, and that actual results are likely to differ, and may
differ materially, from those expressed or implied by forward looking statements
contained in this MD&A. Such statements are based on a number of assumptions
which may prove incorrect, including, but not limited to, assumptions about:
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the Company’s future cash requirements, and the ability of the Company to
raise the funding necessary to carry out its planned activities and to meet
its anticipated general and administrative expenses for the remainder of the
fiscal year ending October 31, 2014 and, in particular, past the next 2 to 3
months;
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the level and volatility of the price of commodities, and coal in
particular;
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general business and economic conditions;
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the timing of the receipt of regulatory and governmental approvals, permits
and authorizations necessary to implement and carry on the Company’s proposed
work programs, particularly at Carbon Creek;
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conditions in the financial markets generally;
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the Company’s ability to secure the necessary consulting, drilling and
related services and supplies on favourable terms in connection with its
ongoing and planned exploration programs;
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the Company’s ability to attract and retain key staff;
| Cardero Resource Corp. |
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| Form 51-102F1 |
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| Management Discussion & Analysis |
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| Three months
ended January 31, 2014 |
Page 3 |
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the accuracy of the Company’s resource/reserve estimates (including with
respect to size and grade) and the geological, operational and price
assumptions on which these are based;
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the timing of the ability to commence and complete any proposed work at
Carbon Creek;
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the anticipated terms of the consents, permits and authorizations necessary
to carry out the planned exploration programs at the Company’s properties and
the Company’s ability to comply with such terms on a safe and cost-effective
basis;
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the ongoing relations of the Company with its underlying optionors/lessors,
its joint venture partners, the applicable regulatory agencies, First Nations
in British Columbia and indigenous groups in other countries; and
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that the metallurgy and recovery characteristics of samples from certain of
the Company’s mineral properties are reflective of the deposit as a whole.
These forward looking statements are made as of the date hereof
and the Company does not intend and does not assume any obligation, to update
these forward looking statements, except as required by applicable law. For the
reasons set forth above, investors should not attribute undue certainty to or
place undue reliance on forward-looking statements.
Caution Regarding Adjacent or Similar Mineral Properties
This MD&A contains information with respect to adjacent or
similar mineral properties in respect of which the Company has no interest or
rights to explore or mine. The Company advises US investors that the mining
guidelines of the US Securities and Exchange Commission (the “SEC”) set forth in
the SEC’s Industry Guide 7 (“SEC Industry Guide 7”) strictly prohibit
information of this type in documents filed with the SEC. Because the Company
meets the definition of a “foreign private issuer” under applicable SEC rules
and is preparing this MD&A pursuant to Canadian disclosure requirements
under the Canada-U.S. Multi-Jurisdictional Disclosure System, this MD&A is
not subject to the requirements of SEC Industry Guide 7. Readers are cautioned
that the Company has no interest in or right to acquire any interest in any such
properties, and that mineral deposit on adjacent or similar properties are not
indicative of mineral deposits on the Company’s properties.
Caution Regarding Reference to Resources and Reserves
National Instrument 43-101 Standards of Disclosure of Mineral
Projects (“NI 43-101”) is a rule developed by the Canadian Securities
Administrators which establishes standards for all public disclosure an issuer
makes of scientific and technical information concerning mineral projects.
Unless otherwise indicated, all reserve and resource estimates contained in or
incorporated by reference in this MD&A have been prepared in accordance with
NI 43-101 and the guidelines set out in the Canadian Institute of Mining,
Metallurgy and Petroleum (the “CIM”) Standards on Mineral Resource and Mineral
Reserves, adopted by the CIM Council on November 14, 2004 (the “CIM Standards”)
as they may be amended from time to time by the CIM and, with respect to coal,
in the Geological Survey of Canada Paper 88-21 entitled “A Standardized Coal
Resource/Reserve Reporting System for Canada” originally published in 1988.
The terms “mineral reserve”, “proven mineral reserve” and
“probable mineral reserve” are Canadian mining terms as defined in accordance
with NI 43-101 and the CIM Standards. These definitions differ from the
definitions in SEC Industry Guide 7. The SEC has taken the position that mineral
reserves for a mineral property may not be designated unless: (i) competent
professional engineers conduct a detailed engineering and economic study, and
the “bankable” or “final” feasibility study demonstrates that a mineral deposit
can be mined profitably at a commercial rate; (ii) a historic three-year average
commodity price is used in any reserve or cash flow analysis used to designate
reserves; and (iii) the company has demonstrated that the mineral property will
receive its governmental permits, and the primary environmental document has
been filed with the appropriate governmental authorities.
| Cardero Resource Corp. |
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| Form 51-102F1 |
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| Management Discussion & Analysis |
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| Three months
ended January 31, 2014 |
Page 4 |
In addition, the terms “mineral resource”, “measured mineral
resource”, “indicated mineral resource” and “inferred mineral resource” are
defined in and required to be disclosed by NI 43-101 and the CIM Standards;
however, these terms are not defined terms under SEC Industry Guide 7 and are
normally not permitted to be used in reports and registration statements filed
with the SEC. Investors are cautioned not to assume that any part or all of
mineral deposits in these categories will ever be converted into reserves.
“Inferred mineral resources” have a great amount of uncertainty as to their
existence, and great uncertainty as to their economic and legal feasibility. It
cannot be assumed that all or any part of an inferred mineral resource will ever
be upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. Investors are cautioned not to assume that all or
any part of an inferred mineral resource exists or is economically or legally
mineable. Disclosure of “contained ounces” in a resource is permitted disclosure
under Canadian regulations; however, the SEC normally only permits issuers to
report mineralization that does not constitute “reserves” by SEC Industry Guide
7 standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this MD&A and the
documents incorporated by reference herein contain descriptions of the Company’s
mineral deposits that may not be comparable to similar information made public
by U.S. companies subject to the reporting and disclosure requirements under the
United States federal securities laws and the rules and regulations thereunder.
Caution Regarding Historical Results
Historical results of operations and trends that may be
inferred from the discussion and analysis in this MD&A may not necessarily
indicate future results from operations. In particular, the current state of the
global securities markets may cause significant reductions in the price of the
Company’s securities and render it difficult or impossible for the Company to
raise the funds necessary to continue operations. See “Risk Factors - Share
Price Volatility”.
All of the Company's public disclosure filings, including its
most recent management information circular, material change reports, press
releases and other information, may be accessed via www.sedar.com and readers are urged to review these
materials, including the technical reports filed with respect to the Company’s
mineral properties.
DATE
This MD&A reflects information available as at March 13,
2014.
RESULTS OF OPERATIONS
Background
Cardero is a junior resource mineral exploration company. Its
assets consist of interests in mineral properties, investments and cash. The
Company funds its operations primarily through the sale of its equity securities, its investments and interests in its mineral
properties and, more recently, debt. The mineral exploration business is very
high risk (See “Risk Factors”).
| Cardero Resource Corp. |
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| Form 51-102F1 |
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| Management Discussion & Analysis |
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| Three months
ended January 31, 2014 |
Page 5 |
Exploration Activities
General
Cardero is focussed on advanced stage projects, and on bulk
commodities such as metallurgical coal and iron, where it can add value through
identification and acquisition of advanced projects.
During the quarter ended January 31, 2014 and to the date of
this MD&A, the Company has considered moving forward to carry out a new
optimized and restated Prefeasibility Study (“New PFS”) for the Carbon Creek
project. Tenders for the carrying out of the New PFS have been received and the
Company is currently considering the best way to move forward. The ability of
the Company to commence such activities is totally dependent upon it securing
sufficient additional funding to be able to do so, of which there can be no
certainty. Cardero’s current strategy is to seek to option-out or joint venture
all of its “non-core” assets and monetize its iron assets, allowing the Company
to focus on Carbon Creek. The Company also continues to seek joint venture
partners for its assets other than Carbon Creek, but no new joint ventures were
entered into and none are presently under negotiation. The Company is presently
seeking an extension to its joint venture relating to Sheini so as to have time
to locate a potential buyer for its interest, but there can be no certainty that
it will be successful in doing so. The Company does not propose to carry out any
additional work on Sheini.
Property |
Total Costs
Capitalized
at
October 31, 2013 |
Total Costs
Capitalized at
January 31,
2014 |
Proposed Fiscal 2014
Expenditures(1) |
| Carbon Creek Metallurgical Coal Project, BC, Canada |
$78,152,650 |
$78,241,724 |
$1,000,000
|
|
Note: |
1. |
This amount represents the estimated exploration
expenditures for the entire fiscal year ending October 31, 2014 and does
not include property acquisition costs. Estimated expenditures are
contingent upon ongoing successful results justifying further
expenditures, as well as the Company raising the necessary financing to
carry out its planned work, as it does not currently have the
required funds to carry out the planned work.
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Material Mineral Property
Carbon Creek Metallurgical Coal Deposit, British Columbia,
Canada
The Carbon Creek Metallurgical Coal Project (“Carbon Creek”) is
the Company’s flagship asset and its sole material property at this time. Carbon
Creek is an advanced metallurgical coal development project located in the Peace
River Coal District of northeast British Columbia, Canada. The Carbon Creek
property, held by Cardero Coal Ltd. (a wholly owned subsidiary of the Company
(“Cardero Coal”)) lies approximately 60 kilometers (km) northwest of the town of
Chetwynd, BC and 40km west of the town of Hudson’s Hope. Improved forest service
roads connect the property with British Columbia Highway 29 between the towns of
Chetwynd and Hudson’s Hope. The CN Rail line connecting Fort St. John and
Tumbler Ridge areas with Prince George passes 40km south of the property. The CN
Rail line provides direct access to the ports of Vancouver and Ridley Terminals
in Prince Rupert, BC. The northern end of the property is adjacent to the
Williston Lake and is approximately 175km east of Mackenzie, BC by water.
| Cardero Resource Corp. |
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| Form 51-102F1 |
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| Management Discussion & Analysis |
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| Three months
ended January 31, 2014 |
Page 6 |
Having completed acquisition of the project in June 2011, the
Company released results of an independent preliminary economic assessment in
December 2011, followed by a Prefeasibility Study (“PFS”) in September 2012. The
PFS indicates that Carbon Creek has a proven and probable reserve of 121 million
tonnes, included within a 468 million tonne measured and indicated resource, of
ASTM Coal Rank mvB coal. Mineral resources are not mineral reserves and there
is no assurance that any of the additional mineral resources that are not
already classified as reserves will ultimately be reclassified as proven or
probable reserves. Mineral resources which are not mineral reserves do not have
demonstrated economic viability. The PFS estimates an undiscounted cash flow
of $2.2 billion, an NPV8 of 633 million, and an IRR of 24% (all on a
post-tax, 75% basis). For details with respect to the work done to date and the
assumptions underlying the current resource and reserve estimates and PFS, see
the technical report entitled “Technical Report, Prefeasibility Study of the
Carbon Creek Coal Property, British Columbia, Canada” dated November 6, 2012
with an effective date of September 20, 2012 available under the Company’s
profile at www.sedar.com.
The Company’s plan was to undertake a bankable feasibility
study (“BFS”) on the project in 2013 and in late 2012 and early 2013 it
continued work on the studies and other activities required in support of the
preparation of the BFS. It also continued with the necessary activities in
support of its planned application for an Environment Assessment Certificate and
to negotiate agreements with respect to the required infrastructure for
development and mining at Carbon Creek, including transportation, loading
facilities and power, as well as continuing with negotiations with applicable
First Nations regarding impact benefit agreements. The last round of drilling at
Carbon Creek was completed in early 2013, and coal quality studies based on the
core produced continued into mid-2013.
However, by mid-2013 it was apparent to the Company that, given
the current economic climate for junior exploration companies and the difficulty
in raising new capital, it would be unable to secure the necessary capital to
continue work on the BFS. Accordingly, in July, 2013, the Company terminated its
entire operational staff involved with the Carbon Creek project and halted work
on the BFS until such time, if at all, as it can raise the necessary funds to be
able to complete it. The Company estimates that a minimum of approximately
$8,000,000 will be required in order to complete the BFS. The Company does
not have sufficient funds in place to proceed with a BFS, and its ability to
move forward with a BFS is subject to raising the required funding. The Company
is unable to predict at this time when, or if, it will be able to secure the
necessary funding to commence work on a BFS.
For the fiscal year ending October 31, 2014, the Company
proposes to initially assess the desirability of proceeding with the New PFS
and, if it determines this to be desirable and of potential benefit to the
Company, to proceed with such New PFS, subject to securing the necessary
financing to do so (of which there can be no assurance). The Company estimates
that to proceed with and complete the Revised PFS would cost of the order of
$1,000,000. Since completing the PFS discussed above, the Company has completed
approximately 23,000 metres of additional drilling and has received a
substantial quantity of new coal quality data. The New PFS would include a new
resource/reserve estimate, a new mine plan and several material project
optimizations, as well as substantially more detailed coal quality information
and processing design. Based on this work, an update detailed economic analysis
would be included in the New PFS. In the past month, the Company has issued a
detailed scope of work for a New PFS and has received proposals from three
consulting firms. A decision on whether to proceed has not yet been taken.
| Cardero Resource Corp. |
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| Form 51-102F1 |
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| Management Discussion & Analysis |
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| Three months
ended January 31, 2014 |
Page 7 |
Other Mineral Properties
Sheini Hills Iron Ore Project, Ghana
Cardero Ghana Ltd. (an indirect wholly owned Ghanaian subsidiary of the Company (“Cardero Ghana”), has entered into three separate joint ventures (one for each prospecting license), each dated December 12, 2011 (the “Effective
Date” of each joint venture) with Emmaland Resources Ltd. (“Emmaland”) to explore and, if warranted, develop, the lands subject to three prospecting licenses covering lands located in the Zabzugu-Tatale District in the Northern
Region of the Republic of Ghana and referred to as the Sheini Hills Iron Ore Project (approximately 400 square kilometres in aggregate). Pursuant to the joint ventures, Cardero Ghana can acquire a 100% joint venture interest in each of the three
prospecting licenses, subject to (a) a 10% NPI in favour of Emmaland and (b) a 10% fully carried interest, in favour of the Government of Ghana, in the portions of the license areas that become the subject of one or more mining licenses subsequently
issued to Emmaland.
Cardero Ghana did not make the payment due under the Sheini North joint venture in December, 2012, and has not made the payments due under the Sheini North, Central or South joint ventures due in December, 2013 and is negotiating with Emmaland for
extensions of such payments for an additional year. However, there can be no certainty that any such extensions can be successfully negotiated. If the payment(s) cannot be renegotiated, and Emmaland elects to deliver a notice of default, then
Cardero Ghana would be deemed to have withdrawn from the applicable joint venture 21 days after receipt of such notice of default if it does not make the required payment prior to such time and would thereby lose all interest in Sheini. The
purpose of the Company seeking to extend such joint ventures is for the purpose of enabling it to seek a buyer for its interest, although there can be no certainty that it will be able to do so. The Company does not plan to carry out any more field
work at Sheini.
As noted above, the Company is actively trying to divest all or a portion of its interest in Sheini and is negotiating with Emmaland to keep the joint ventures in good standing by extending payments for a year. Cardero Ghana is also working with
Emmaland to secure a one year extension of the applicable prospecting licenses (which otherwise expired in December, 2013). However, here can be no certainty that Cardero Ghana will be successful in renegotiating the terms of the joint venture
agreements as necessary to maintain the joint ventures in good standing, that Emmaland and Cardero Ghana will be successful in securing the required one-year extension of the prospecting licenses or that the Company will be successful in negotiating
and/or completing a transaction involving the sale of all or a portion of its interest in Sheini. If either the joint ventures cannot be kept in good standing, or the prospecting licenses cannot be extended the Company will lose all interest in
Sheini.
Titac Titanium Projects, Minnesota, USA
The lease payment due in July, 2013 in respect of the Titac property was not made by the Company. However, the Company has not yet received a notice of default in this regard. At such time as the Company does receive a notice of default in this
regard, it will have 10 days to make the payment or the lease may be terminated by the lessor.
Organullo Project, Argentina
On September 9, 2011, the Company entered into an option/joint venture agreement with Artha Resources Corporation (“Artha”), whereby an Argentinean subsidiary of Artha can earn a 55% working interest in the Organullo property, and
thereafter form a joint venture with Cardero Argentina S.A., a wholly owned subsidiary of the Company. On September 11, 2013, Artha officially notified the Company that Artha did
not incur the required expenditures and has consequently dropped its option to acquire any interest in the property. The Company’s Argentinean subsidiary holds the Organullo property directly, and there are no underlying agreements.
| Cardero Resource Corp. |
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| Form 51-102F1 |
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| Management Discussion & Analysis |
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| Three months
ended January 31, 2014 |
Page 8 |
The Company has established an extensive data room and has signed confidentiality agreements with three companies who have expressed an interest in optioning or acquiring the project. There can be no certainty that the Company will be successful
in completing a deal.
Minas Pirquitas Project, Argentina
On July 14, 2009, the Company and Davcha Resources Pty. Ltd. (“Davcha”) finalized the formal agreement in connection with the option to Davcha to earn a 55% interest in the property. Davcha is the operator. Davcha assigned all its
interest in such agreement to Artha, which assignment was consented to by Cardero on September 28, 2009. Pursuant to the Cardero/Davcha agreement and the assignment thereof to Artha, Artha is required to incur expenditures of USD 50,000 on or
before July 14, 2010 (incurred) and additional expenditures of USD 950,000 on or before July 14, 2013.
As at July 14, 2013, Artha had not expended the required funds in order to exercise their initial option. However, Artha did serve the Company with a Force Majeure notice, claiming that Artha had been impeded in making their expenditure
because of difficulty in obtaining work permits in the 12 months ending June 2013 and therefore the July 14, 2013 date should be extended for a 12 month period. The Company disputed this position.
As at October 24, 2013, Artha and the Company reached a new agreement. The agreement provides Cardero with a limited time to sell the Pirquitas Project and provides a minimum acceptable price. On completion of a sale within these parameters, Artha
will be entitled to receive 25% of the net proceeds. If Cardero is not successful in completing a sale, Artha will have a 12-month period thereafter in which to incur not less than an additional USD 464,008 in exploration expenditures in order to
earn a majority 55% interest in the project. There can be no certainty that the Company will be successful in negotiating or closing a sale of the Pirquitas project, whether within the limited timeframe specified above, or at all.
Qualified Person(s) and Quality Control/Quality Assurance
EurGeol Keith Henderson, PGeo, Cardero’s Executive Vice President and a qualified person as defined by NI 43-101, has supervised the preparation of the scientific and technical information that forms the basis for the mineral property
disclosure in this MD&A and has approved the disclosure herein. Mr. Henderson is not independent of the Company, as he is an employee and holds incentive stock options.
Risk Factors
The Company is in the business of acquiring, exploring and, if warranted, developing and exploiting natural resource properties, primarily in British Columbia, Canada. Due to the nature of the Company’s proposed business and the present stage
of exploration of its mineral properties (which are primarily early to advanced stage exploration properties and, with the exception of Carbon Creek, which has estimated reserves and resources, with no known resources and or known reserves), the
following risk factors, among others, will apply:
| Cardero Resource Corp. |
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| Form 51-102F1 |
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| Management Discussion & Analysis |
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| Three months
ended January 31, 2014 |
Page 9 |
Lack of Operating Funds: At the present time, the Company is experiencing significant difficulty in raising additional capital to continue its operations. The Company has taken steps to conserve cash by reducing staffing, halting/delaying further work on its properties, including the Environmental Assessment Application and planned BFS for Carbon Creek, and moving to shut down its subsidiaries in Mexico, Peru and the United States. Although
the Company continues to pursue potential funding opportunities, there can be no assurance that it will be successful in doing so. If the Company is unable to secure additional financing, it may be forced to further curtail or cease operations and
may lose its interest in some or all of its properties, including Carbon Creek, which is its only material property at this time.
Resource Exploration and Development is Generally a Speculative Business: Resource exploration and development is a speculative business and involves a high degree of risk, including, among other things, unprofitable efforts resulting both
from the failure to discover mineral deposits and from finding mineral deposits which, though present, are insufficient in size and grade at the then prevailing market conditions to return a profit from production. The marketability of natural
resources which may be acquired or discovered by the Company will be affected by numerous factors beyond the control of the Company. These factors include market fluctuations, the proximity and capacity of natural resource markets, government
regulations, including regulations relating to prices, taxes, royalties, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these
factors may result in the Company not receiving an adequate return on invested capital.
Other than at Carbon Creek, there are no known reserves or resources on any of the Company’s properties. The majority of exploration projects do not result in the discovery of commercially mineable deposits of ore. Substantial
expenditures are required to establish ore reserves through drilling and metallurgical and other testing techniques, determine metal content and metallurgical recovery processes to extract metal from the ore, and construct, renovate or expand mining
and processing facilities. No assurance can be given that any level of recovery of ore reserves will be realized or that any identified mineral deposit, even it is established to contain an estimated resource, will ever qualify as a commercial
mineable ore body which can be legally and economically exploited. Mineral resources are not mineral reserves and there is no assurance that any mineral resources will ultimately be reclassified as proven or probable reserves. Mineral resources
which are not mineral reserves do not have demonstrated economic viability.
Fluctuation of Commodity Prices: Even if commercial quantities of mineral deposits are discovered by the Company, there is no guarantee that a profitable market will exist for the sale of the minerals produced. The Company’s long-term
viability and profitability depend, in large part, upon the market price of minerals which have experienced significant movement over short periods of time, and are affected by numerous factors beyond the control of the Company, including
international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production
methods. The recent price fluctuations in the price of all commodities for which the Company is presently exploring is an example of a situation over which the Company has no control and may materially adversely affect the Company in a manner that
it may not be able to compensate for. The supply of and demand for minerals are affected by various factors, including political events, economic conditions and production costs in major producing regions. There can be no assurance that the price of
any minerals produced from the Company’s properties will be such that any such deposits can be mined at a profit.
| Cardero Resource Corp. |
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| Form 51-102F1 |
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| Management Discussion & Analysis |
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| Three months
ended January 31, 2014 |
Page 10 |
Recent market events and conditions: Since 2008, the U.S. credit markets have experienced serious disruption due to a deterioration in residential property values, defaults and delinquencies in the residential mortgage market
(particularly, sub-prime and non-prime mortgages) and a decline in the credit quality of mortgage backed securities. These problems have led
to a slow-down in residential housing market transactions, declining housing
prices, delinquencies in non-mortgage consumer credit and a general decline in
consumer confidence. These conditions caused a loss of confidence in the broader
U.S. and global credit and financial markets and resulting in the collapse of,
and government intervention in, major banks, financial institutions and insurers
and creating a climate of greater volatility, less liquidity, widening of credit
spreads, a lack of price transparency, increased credit losses and tighter
credit conditions. Notwithstanding various actions by the U.S. and foreign
governments, concerns about the general condition of the capital markets,
financial instruments, banks, investment banks, insurers and other financial
institutions caused the broader credit markets to further deteriorate and stock
markets to decline substantially. In addition, general economic indicators have
deteriorated, including declining consumer sentiment, increased unemployment and
declining economic growth and uncertainty about corporate earnings.
While these conditions appear to have improved slightly in 2013
and into 2014, unprecedented disruptions in the credit and financial markets
have had a significant material adverse impact on a number of financial
institutions and have limited access to capital and credit for many companies.
These disruptions could, among other things, make it more difficult for the
Company to obtain, or increase its cost of obtaining, capital and financing for
its operations. The Company’s access to additional capital may not be available
on terms acceptable to it or at all.
General Economic Conditions: The recent unprecedented
events in global financial markets have had a profound impact on the global
economy. Many industries, including the gold and base metal mining industry, are
impacted by these market conditions. Some of the key impacts of the current
financial market turmoil include contraction in credit markets resulting in a
widening of credit risk, devaluations and high volatility in global equity,
commodity, foreign exchange and precious metal markets, and a lack of market
liquidity. A continued or worsened slowdown in the financial markets or other
economic conditions, including but not limited to, consumer spending, employment
rates, business conditions, inflation, fuel and energy costs, consumer debt
levels, lack of available credit, the state of the financial markets, interest
rates, and tax rates may adversely affect the Company’s growth and
profitability. Specifically:
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The global credit/liquidity crisis could impact the cost and availability
of financing and the Company’s overall liquidity
-
the volatility of commodity prices may impact the Company’s future
revenues, profits and cash flow
-
volatile energy prices, commodity and consumables prices and currency
exchange rates impact potential production costs
-
the devaluation and volatility of global stock markets impacts the
valuation of the Common Shares, which may impact the Company’s ability to
raise funds through the issuance of Common Shares
These factors could have a material adverse effect on the
Company’s financial condition and results of operations.
Share Price Volatility: In recent years, worldwide
securities markets, particularly those in the United States and Canada, have
experienced a high level of price and volume volatility, and the market price of
securities of many companies, particularly those considered exploration or
development stage companies,
have experienced unprecedented fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. Most significantly, the share prices of junior natural resource
companies have experienced an unprecedented decline in value and there has been a significant decline in the number of buyers willing to purchase such securities. In addition, significantly higher redemptions by holders of mutual funds has forced
many of such funds (including those holding the Company’s securities) to sell such securities at any price. As a consequence, despite the Company’s past success in securing significant equity financing, market forces may render it
difficult or impossible for the Company to secure places to purchase new share issues at a price which will not lead to severe dilution to existing shareholders, or at all. Therefore, there can be no assurance that significant fluctuations in the trading price of the Company’s common shares will not occur, or that such fluctuations will not materially adversely impact on the Company’s ability to raise
equity funding without significant dilution to its existing shareholders, or at all.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 11 |
Permits and Licenses: The operations of the Company will require licenses and permits from various governmental authorities. There can be no assurance that the Company will be able to obtain all necessary licenses and permits that may be
required to carry out exploration, development and mining operations at its projects, on reasonable terms or at all. Delays in obtaining, or a failure to obtain, such licenses and permits, or a failure to comply with the terms of any such licenses
and permits that the Company does obtain, could have a material adverse effect on the Company.
Acquisition of Mineral Properties under Agreements: The agreements pursuant to which the Company has the right to acquire a number of its properties provide that the Company must make a series of cash payments and/or share issuances over
certain time periods, expend certain minimum amounts on the exploration of the properties or contribute its share of ongoing expenditures. Failure by the Company to make such payments, issue such shares or make such expenditures in a timely fashion
may result in the Company losing its interest in such properties. There can be no assurance that the Company will have, or be able to obtain, the necessary financial resources to be able to maintain all of its property agreements in good standing,
or to be able to comply with all of its obligations thereunder, with the result that the Company could forfeit its interest in one or more of its mineral properties.
Title Matters: The acquisition of title to mineral properties can be a very detailed and time-consuming process. Title to, and the area of, mineral properties may be disputed. While the Company has diligently investigated title to all mineral
properties in which it has an interest and, to the best of its knowledge, title to all such properties is in good standing or, where not yet granted, the application process appears to be proceeding normally in all the circumstances, this should not
be construed as a guarantee of title or that any such applications for concessions will be granted. Title to mineral properties may be affected by undetected defects such as aboriginal or indigenous peoples’ land claims, or unregistered
agreements or transfers. The Company has not obtained title opinions for the majority of its mineral properties. Not all the mineral properties in which the Company has an interest have been surveyed, and their actual extent and location may be in
doubt.
Surface Rights and Access: Although the Company acquires the rights to some or all of the minerals in the ground subject to the mineral tenures that it acquires, or has a right to acquire, in most cases it does not thereby acquire any rights
to, or ownership of, the surface to the areas covered by its mineral tenures. In such cases, applicable mining laws usually provide for rights of access to the surface for the purpose of carrying on mining activities, however, the enforcement of
such rights through the courts can be costly and time consuming. It is necessary to negotiate surface access or to purchase the surface rights if long-term access is required. There can be no guarantee that, despite having the right at law to
access the surface and carry on mining activities, the Company will be able to negotiate satisfactory agreements with
any such existing landowners/occupiers for such access or purchase of such surface rights, and therefore it may be unable to carry out planned mining activities. In addition, in circumstances where such access is denied, or no agreement can be
reached, the Company may need to rely on the assistance of local officials or the courts in the applicable jurisdiction, the outcomes of which cannot be predicted with any certainty. The inability of the Company to secure surface access or purchase
required surface rights could materially and adversely affect the timing, cost or overall ability of the Company to develop any mineral deposits it may locate. This is a particular problem in many areas of Argentina and Ghana, where blockades of
access to the Company’s properties, hostile actions by local communities and indigenous peoples and the potential unwillingness of local police or governmental officials to assist a foreign company against its own citizens can result in the
Company being unable to carry out any exploration activities despite being legally authorized to do so and having complied with all applicable local laws and requirements. Such issues can also occur in Canada, especially in connection with actions
concerning resource development projects and involving first nations and environmental protest groups.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 12 |
No Assurance of Profitability: The Company has no history of production or earnings and due to the nature of its business there can be no assurance that the Company will be profitable. The Company has not paid dividends on its shares since
incorporation and does not anticipate doing so in the foreseeable future. All of the Company’s properties are in the exploration stage and, with the exception of Carbon Creek, the Company has not defined or delineated any proven or probable
reserves on any of its properties. None of the Company’s properties are currently under development. Continued exploration of its existing properties and the future development of any properties found to be economically feasible, will require
significant funds. The only present source of funds available to the Company is through the sale of its equity securities, the sale or optioning of a portion of its interest in its mineral properties or debt financing, none of which may be available
at any particular time. Even if the results of exploration are encouraging, the Company may not have sufficient funds to conduct the further exploration that may be necessary to determine whether or not a commercially mineable deposit exists. While
the Company may generate additional working capital through further equity offerings, through the sale or possible syndication of its properties, or through short-term debt facilities, there is no assurance that any such funds will be available
through any of such methods on favourable terms, or at all. At present, it is impossible to determine what amounts of additional funds, if any, may be required. Failure to raise such additional capital could put the continued viability of the
Company at risk.
Uninsured or Uninsurable Risks: Exploration, development and mining operations involve various hazards, including environmental hazards, industrial accidents, metallurgical and other processing problems, unusual or unexpected rock
formations, structural cave-ins or slides, flooding, fires, metal losses and periodic interruptions due to inclement or hazardous weather conditions. These risks could result in damage to or destruction of mineral properties, facilities or other
property, personal injury, environmental damage, delays in operations, increased cost of operations, monetary losses and possible legal liability. The Company may not be able to obtain insurance to cover these risks at economically feasible premiums
or at all. The Company may elect not to insure where premium costs are disproportionate to the Company’s perception of the relevant risks. The payment of such insurance premiums and of such liabilities would reduce the funds available for
exploration and production activities.
Government Regulation: Any exploration, development or mining operations carried on by the Company will be subject to government legislation, policies and controls relating to prospecting, development, production, environmental protection,
mining taxes and labour standards. The Company cannot predict whether or not such legislation, policies or controls, as presently in effect, will remain so, and any changes therein (for example, significant new royalties or taxes), which are
completely outside the control
of the Company, may materially adversely affect to ability of the Company to continue its planned business within any such jurisdictions.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 13 |
Foreign Countries and Political Risk: The Company has mineral properties located in Argentina, the United States and Ghana. In such countries, mineral exploration and mining activities may be affected in varying degrees by political or
economic instability, expropriation of property and changes in government regulations such as tax laws, business laws, environmental laws and mining laws. Any changes in regulations or shifts in political conditions are beyond the control of the
Company and may materially adversely affect it business, or if significant enough, may make it impossible to continue to operate in certain countries. Operations may be affected in varying degrees by government regulations with respect to
restrictions on production, price controls, foreign exchange restrictions, export controls, income taxes, expropriation of property, environmental legislation and mine safety.
Dependence Upon Others and Key Personnel: The success of the Company’s operations will depend upon numerous factors, many of which are beyond the Company’s control, including (i) the ability of the Company to enter into strategic
alliances through a combination of one or more joint ventures, mergers or acquisition transactions; and (ii) the ability to attract and retain additional key personnel in exploration, mine development, sales, marketing, technical support and
finance. These and other factors will require the use of outside suppliers as well as the talents and efforts of the Company. There can be no assurance of success with any or all of these factors on which the Company’s operations will depend.
The Company has relied and may continue to rely, upon consultants and others for operating expertise.
Exploration and Mining Risks: Fires, power outages, labour disruptions, flooding, explosions, cave-ins, landslides and the inability to obtain suitable or adequate machinery, equipment or labour are other risks involved in the operation of
mines and the conduct of exploration programs. Substantial expenditures are required to establish reserves through drilling, to develop metallurgical processes, to develop the mining and processing facilities and infrastructure at any site chosen
for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or that funds required
for development can be obtained on a timely basis. The economics of developing mineral properties is affected by many factors including the cost of operations, variations of the grade of ore mined, fluctuations in the price of gold or other minerals
produced, costs of processing equipment and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protection. In addition, the grade of
mineralization ultimately mined may differ from that indicated by drilling results and such differences could be material. Short term factors, such as the need for orderly development of ore bodies or the processing of new or different grades, may
have an adverse effect on mining operations and on the results of operations. There can be no assurance that minerals recovered in small scale laboratory tests will be duplicated in large scale tests under on-site conditions or in production scale
operations. Material changes in geological resources, grades, stripping ratios or recovery rates may affect the economic viability of projects.
Currency Fluctuations: The Company presently maintains its accounts in Canadian dollars. Due to the nature of its operations in such countries, the Company also maintains accounts in U.S. dollars, Argentinean pesos and Ghanaian cedis. The
Company’s operations in the United States, Argentina and Ghana and its proposed payment commitments and exploration expenditures under many of the agreements pursuant to which it holds, or has a right to acquire, an interest in its mineral
properties are denominated in U.S. dollars, making it subject to foreign currency fluctuations. Such fluctuations are out of its control and may materially adversely affect the Company’s financial position and results. The Company does not
engage in any hedging programs with respect to currencies.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 14 |
Environmental Restrictions: The activities of the Company are subject to environmental regulations promulgated by government agencies in different countries from time to time. Environmental legislation generally provides for restrictions and
prohibitions on spills, releases or emissions into the air, discharges into water, management of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by
mining operations. Certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means stricter standards, and enforcement, fines and penalties for
non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations has a
potential to reduce the profitability of operations.
Regulatory Requirements: The activities of the Company are subject to extensive regulations governing various matters, including environmental protection, management and use of toxic substances and explosives, management of natural resources,
exploration, development of mines, production and post-closure reclamation, exports, price controls, taxation, regulations concerning business dealings with indigenous peoples, labour standards on occupational health and safety, including mine
safety, and historic and cultural preservation. Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties, enforcement actions thereunder, including orders issued by regulatory or judicial authorities
causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions, any of which could result in the Company incurring significant expenditures.
The Company may also be required to compensate those suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future laws and regulations, or more stringent enforcement of current
laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspension of the Company’s operations and delays in the exploration and development of the Company’s properties.
Limited Experience with Development-Stage Mining Operations: The Company has limited experience in placing resource properties into production, and its ability to do so will be dependent upon using the services of appropriately experienced
personnel or entering into agreements with other major resource companies that can provide such expertise. There can be no assurance that the Company will have available to it the necessary expertise when and if it places its resource properties
into production.
Estimates of Mineral Reserves and Resources and Production Risks: The mineral resource estimates presented in the Company’s filings with securities regulatory authorities, press releases and other public statements that may be made
from time to time are based upon estimates made by Company personnel and independent geologists, and no assurance can be given that any particular level of recovery of minerals will in fact be realized or that an identified reserve or resource will
ever qualify as a commercially mineable (or viable) deposit which can be legally and economically exploited. The estimating of mineral resources and mineral reserves is a subjective process and the accuracy of mineral resource and mineral reserve
estimates is a function of the quantity and quality of available data, the accuracy of statistical computations, and the assumptions used and judgments made in interpreting available engineering and geological information. There is significant
uncertainty in any mineral resource or mineral reserve estimate and the actual deposits encountered and the economic viability of a deposit may differ materially from the Company’s estimates. Accordingly, there can be no assurance that:
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 15 |
-
these estimates will be accurate;
-
reserve, resource or other mineralization figures will be accurate; or
-
this mineralization could be mined or processed profitably.
Because the Company has not commenced production at any of its
properties, and has not (with the exception of Carbon Creek) defined or
delineated any proven or probable reserves on any of its properties,
mineralization estimates for the Company’s properties may require adjustments or
downward revisions based upon further exploration or development work or actual
production experience. In addition, the grade of mineralization ultimately mined
may differ from that indicated by drilling results and such differences could be
material. There can be no assurance that minerals recovered in small-scale tests
will be duplicated in large-scale tests under on-site conditions or in
production scale. Production can be affected by such factors as permitting
regulations and requirements, weather, environmental factors, unforeseen
technical difficulties, unusual or unexpected geological formations and work
interruptions. Short term factors, such as the need for orderly development of
deposits or the processing of new or different grades, may have a material
adverse effect on mining operations and on the results of operations. There can
be no assurance that minerals recovered in small scale laboratory tests will be
duplicated in large scale tests under on-site conditions or in production scale
operations. Material changes in reserves or resources, grades, stripping ratios
or recovery rates may affect the economic viability of projects. The estimated
resources described in the Company’s filings with securities regulatory
authorities, press releases and other public statements that may be made from
time to time should not be interpreted as assurances of mine life or of the
profitability of future operations. Estimated mineral resources and mineral
reserves may have to be re-estimated based on changes in applicable commodity
prices, further exploration or development activity or actual production
experience. This could materially and adversely affect estimates of the volume
or grade of mineralization, estimated recovery rates or other important factors
that influence mineral resource or mineral reserve estimates. Market price
fluctuations for coal, iron ore and other commodities, increased production
costs or reduced recovery rates or other factors may render any particular
reserves uneconomical or unprofitable to develop at a particular site or sites.
A reduction in estimated reserves could require material write downs in
investment in the affected mining property and increased amortization,
reclamation and closure charges.
Mineral resources are not mineral reserves and there is no
assurance that any mineral resources will ultimately be reclassified as proven
or probable reserves. Mineral resources which are not mineral reserves do not
have demonstrated economic viability.
Enforcement of Civil Liabilities: As many of the assets
of the Company and its subsidiaries are located outside of Canada and the United
States, and certain of the directors and officers of the Company are resident
outside of Canada and/or the United States, it may be difficult or impossible to
enforce judgements granted by a court in Canada or the United States against the
assets of the Company or its subsidiaries or the directors and officers of the
Company residing outside of such country.
Mining Industry is Intensely Competitive: The Company’s
business of the acquisition, exploration and development of mineral properties
is intensely competitive. The Company may be at a competitive disadvantage in
acquiring additional mining properties because it must compete with other
individuals and companies, many of which have greater financial resources,
operational experience and technical capabilities than the Company. The Company
may also encounter increasing competition from other mining companies in efforts
to hire experienced mining professionals. Competition for exploration resources
at all levels is currently very intense, particularly affecting the availability
of manpower, drill rigs and helicopters. Increased competition could adversely
affect the Company’s ability to attract necessary capital funding or acquire suitable producing
properties or prospects for mineral exploration in the future.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 16 |
The Company may be a “passive foreign investment company”
under the U.S. Internal Revenue Code, which may result in material adverse U.S.
federal income tax consequences to investors in Common Shares that are U.S.
taxpayers: Investors in Common Shares that are U.S. taxpayers should be
aware that Cardero believes that it has been in one or more prior tax years, and
may be in current and future tax years, a “passive foreign investment company”
under Section 1297(a) of the U.S. Internal Revenue Code (a “PFIC”). However, no
determination has been made regarding Cardero’s PFIC status for any particular
tax year. If Cardero is or becomes a PFIC, generally any gain recognized on the
sale of the Common Shares and any “excess distributions” (as specifically
defined) paid on the Common Shares must be rateably allocated to each day in a
U.S. taxpayer’s holding period for the Common Shares. The amount of any such
gain or excess distribution allocated to prior years of such U.S. taxpayer’s
holding period for the Common Shares generally will be subject to U.S. federal
income tax at the highest tax applicable to ordinary income in each such prior
year, and the U.S. taxpayer will be required to pay interest on the resulting
tax liability for each such prior year, calculated as if such tax liability had
been due in each such prior year. The amount of any such gain or excess
distribution allocated to the tax year of disposition or distribution of the
excess distribution and to years before the entity became a PFIC, if any, would
be taxed as ordinary income.
Alternatively, a U.S. taxpayer that makes a “qualified electing
fund” (a “QEF”) election with respect to Cardero generally will be subject to
U.S. federal income tax on such U.S. taxpayer’s pro rata share of Cardero’s “net
capital gain” and “ordinary earnings” (as specifically defined and calculated
under U.S. federal income tax rules), regardless of whether such amounts are
actually distributed by Cardero. U.S. taxpayers should be aware, however, that
there can be no assurance that Cardero will satisfy record keeping requirements
under the QEF rules or that Cardero will supply U.S. taxpayers with required
information under the QEF rules, if Cardero is a PFIC and a U.S. taxpayer wishes
to make a QEF election. As a second alternative, a U.S. taxpayer may make a
“mark-to-market election” if Cardero is a PFIC and the Common Shares are
“marketable stock” (as specifically defined). A U.S. taxpayer that makes a
mark-to-market election generally will include in gross income, for each taxable
year in which Cardero is a PFIC, an amount equal to the excess, if any, of (a)
the fair market value of the Common Shares as of the close of such taxable year
over (b) such U.S. taxpayer’s adjusted tax basis in the Common Shares.
The above paragraphs contain only a brief summary of certain
U.S. federal income tax considerations. Investors should consult their own tax
advisor regarding the PFIC rules and other U.S. federal income tax consequences
of the acquisition, ownership, and disposition of Common Shares.
Financial Results of Operations
During the three months ended January 31, 2014, the Company
incurred a net loss of $1,438,413 (2013 – $6,456,276).
The following discussion explains the variations in key
components of these numbers but, as with most junior mineral exploration
companies, the results of operations are not the main factor in establishing the
financial health of the Company. Of far greater significance are the mineral
properties in which the Company has, or may earn, an interest, its working
capital and how many shares it has outstanding. Quarterly results can vary
significantly depending on whether the Company has abandoned any properties or
granted any stock options.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 17 |
Three Months ended January 31, 2014 compared to three
months ended January 31, 2013
The Company’s general and administrative costs were $691,439
(2013- $2,332,200), and reviews of the major items are as follows:
-
Consulting fees decreased to $117,808 (2013 - $192,556), primarily due to a
reduction in activity in the Company’s subsidiaries and cost reductions
implemented by the Company due to less activity;
-
Insurance costs decreased to $28,489 (2013 - $66,209), primarily due to an
adjustment of $35,774 to the understated insurance expenses related to 2013;
-
Investor relations costs decreased significantly to $865 (2013 - $53,593),
due to a significant decreased in share based payment to $Nil (2013 -
$27,002), as well as a significant reduction in investor relations activities
due to the lack of corporate funds. For the same reason, corporate development
costs declined to $27,592 (2013 - $75,695) as did travel costs, which fell to
$9,696 (2013 - $99,959);
-
Office costs of $138,142 (2013 - $231,719), decreased primarily due to a
slow-down of activities in the Company, the curtailing of operations in
Cardero Coal, and significant reductions in the activities of the Company’s
Ghanaian, Peruvian and Argentinean subsidiaries due to a curtailing of
exploration activities in these countries;
-
Professional fees of $81,376 (2013 - $279,757), decreased due significant
reduction in the Company’s overall activities; and
-
Salaries and benefits of $191,770 (2013 - $1,103,630) decreased due to a
significant reduction in share-based payments to $Nil (2013 - $67,124), the
termination of all of the Cardero Coal employees, a reduction in force at the
Ghanaian subsidiary and a salary reduction for remaining employees of the
Company.
Other items showed a loss of $1,001,147 (2013 - $4,124,140).
Due to their nature, these transactions relate to events that do not necessarily
generate comparable effects on the Company’s operating results. Significant
areas of change include:
-
Other income of ($42,884) (2013 - $369,250), of which $(42,559) (2013 –
$100,405) was for providing metallurgical testing services, $Nil (2013 -
$284,056) was for recovery of an outstanding receivable and $(285) (2013-
($15,211) from other;
-
Interest expenses increased significantly to ($1,508,216) (2013 - $16,705),
representing the interest on the USD 5.7M secured notes issued in August, 2013
and on the USD 5.0M line of credit established in December, 2013 (of which USD
2.03M has been drawn down);
-
The realized loss on Trevali warrants in the current period of $87,470
(2013 - $Nil). These warrants expired, unexercised, on January 16, 2016;
-
Due to a decrease in the fair value of available-for-sale investments in
Ethos Capital Corp. (“Ethos”) the Company recorded a loss of $10,144 (2013 –
($596,766)), decline in fair value of
Abzu, Wealth, and Xiana common shares). These
changes are due to market fluctuations which are entirely outside of the
Company’s control;
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 18 |
- The Company recognized a gain of $1,221,072 (2013 - $Nil) on the
settlement of certain debts to trade creditors; and
- The Company was required to incur $1,661,521 in exploration expenditures
for flow-through purposes on or before December 31, 2013. The Company did not
incur these expenditures and was therefore required to pay to the Canada
revenue Agency Flow-Through Part XII.6 interest and penalties in the amount of
$166,152 (2013 $Nil). The Company may also be required to reimburse
subscribers to the flow-through private placement which closed in December,
2012 in respect of the un-incurred expenditures. To date, the Company has not
determined the amount, if any, of such potential reimbursement.
SELECTED ANNUAL INFORMATION
The Company’s consolidated financial statements for the year
ended October 31, 2013 have been prepared in accordance with IFRS. The following
selected financial information for the year ended October 31, 2013 is taken from
the Company’s audited consolidated financial statements for the year ended
October 31, 2013. The information for the years ended October 31, 2012 and 2011
are taken from the audited consolidated financial statements for the years ended
October 31, 2012 and 2011. This information should be read in conjunction with
those statements. Selected annual financial information appears below.
| |
|
October 31, 2013 |
|
|
October 31, 2012 |
|
|
October 31, 2011 |
|
| |
|
|
|
|
|
|
|
|
|
| Interest (expense) revenue |
$ |
(1,389,964 |
) |
$ |
149,434 |
|
$ |
1,659,273 |
|
| Loss for the year |
$ |
(29,759,663 |
) |
$ |
(11,594,099 |
) |
$ |
(25,148,877 |
) |
| Net loss per share |
$ |
(0.27 |
) |
$ |
(0.13 |
) |
$ |
(0.36 |
) |
| Total assets |
$ |
89,114,381 |
|
$ |
106,301,442 |
|
$ |
108,478,339 |
|
SUMMARY OF QUARTERLY RESULTS
The table below sets out the quarterly results for the past
eight quarters:
Fiscal 2014
| |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
|
Interest income (expenses) |
$ |
(1,508,216 |
) |
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
Gain (loss) on sale of investments |
|
(3,331 |
) |
|
- |
|
|
- |
|
|
- |
|
|
Impairment (losses) on available-for-sale
investments |
|
(10,144 |
) |
|
- |
|
|
- |
|
|
- |
|
|
Write-off of exploration and evaluation assets |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Net loss |
|
( 1,438,413 |
) |
|
- |
|
|
- |
|
|
- |
|
|
Net loss per share |
|
(0.01 |
) |
|
- |
|
|
- |
|
|
- |
|
|
Comprehensive loss |
$ |
(1,419,290 |
) |
$ |
- |
|
$ |
- |
|
$ |
- |
|
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 19 |
Fiscal 2013
| |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
|
Interest income (expenses) |
$ |
16,705 |
|
$ |
(49,385 |
) |
$ |
(575,832 |
) |
$ |
(781,452 |
) |
|
Gain (loss) on sale of investments |
|
17,230 |
|
|
- |
|
|
- |
|
|
(56,792 |
) |
|
Impairment losses on available-for-sale
investments |
|
(596,766 |
) |
|
(515,769 |
) |
|
(241,454 |
) |
|
(83,041 |
) |
|
Write-off of exploration and evaluation assets |
|
(3,775,254 |
) |
|
- |
|
|
(12,736,509 |
) |
|
64,650 |
|
|
Net loss |
|
( 6,456,276 |
) |
|
(3,303,693 |
) |
|
(16,091,678 |
) |
|
(3,908,016 |
) |
|
Net loss per share |
|
(0.06 |
) |
|
(0.03 |
) |
|
(0.14 |
) |
|
(.04 |
) |
|
Comprehensive loss |
$ |
(6,384,719 |
) |
$ |
(3,383,243 |
) |
$ |
(15,851,258 |
) |
$ |
(3,961,245 |
) |
Fiscal 2012
| |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
|
Interest income |
|
- |
|
$ |
16,683 |
|
$ |
10,498 |
|
$ |
(1,944 |
) |
|
Gain (loss) on sale of investments |
|
- |
|
|
(13,592 |
) |
|
1,250,207 |
|
|
(2,138,529 |
) |
|
Impairment loss |
|
- |
|
|
(94,304 |
) |
|
(231,019 |
) |
|
(3,335,434 |
) |
|
Gain on loan settlement |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Write-off of exploration and evaluation
assets |
|
- |
|
|
- |
|
|
- |
|
|
(3,554,667 |
) |
|
Net income (loss) |
|
- |
|
|
(3,110,113 |
) |
|
(3,928,536 |
) |
|
(11,887,299 |
) |
|
Net income (loss) per share |
|
- |
|
|
(0.03 |
) |
|
(0.04 |
) |
|
(0.14 |
) |
|
Comprehensive
income (loss) |
|
-
|
|
$ |
196,408 |
|
$ |
(5,406,555 |
) |
$ |
5,829,841 |
|
| Notes: |
1) |
There were no discontinued operations or
extraordinary items in the periods under review. |
| |
2) |
The basic and diluted losses per share were the
same in each of the periods. |
The variation seen over such quarters is primarily dependent
upon the success of the Company’s ongoing property evaluation program and the
timing and results of the Company’s exploration activities on its then current
properties, none of which are possible to predict with any accuracy. There are
no general trends regarding the Company’s quarterly results, and the Company’s
business of mineral exploration is not seasonal. Quarterly results can vary
significantly depending on whether the Company has abandoned any properties or
granted any stock options or paid any employee bonuses and these are the factors
that account for material variations in the Company’s quarterly net losses, none
of which are predictable. While the Company may seek, in the future, to sell
some or all of the interests in other of its exploration and evaluation assets,
the timing and potential effect of any such sale is impossible to predict. The
write-off of exploration and evaluation assets can have a material effect on
quarterly results as and when they occur. Another factor which can cause a
material variation in net loss on a quarterly basis is the grant of stock
options due to the resulting share-based payment charges which can be
significant when they arise. The payment of any employee bonuses, being
once-yearly charges, can also materially affect operating losses for the
quarters in which they occur. General operating costs other than the specific
items noted above tend to be quite similar from period to period. The variation
in income is related solely to the interest earned on funds held by the Company,
which is dependent upon the success of the Company in raising the required
financing for its activities which will vary with overall market conditions, and
is therefore difficult to predict. Interest expense is dependent to a large
degree upon the necessity of the Company to secure funding through long or short
term debt (until April, 2013, the Company did not have any short or long-term
debt or the associated interest expense) and the success of the Company in
securing such debt financing, as well as the relative interest rate negotiated, which cannot be predicted in advance. However, the increasing reliance by the Company on short-term debt/lines of credit will have the effect of significantly increasing
interest expense over that seen in the quarters prior to the second quarter of the fiscal year ended October 31, 2013 and this is not expected to change for the foreseeable future.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 20 |
LIQUIDITY AND CAPITAL RESOURCES
The Company has no revenue generating operations from which it can internally generate funds. Over the past three fiscal years, the Company’s ongoing operations have been predominantly financed by the sale of its equity securities by way of
private placements and the subsequent exercise of share purchase warrants and broker options issued in connection with such private placements. However, the exercise of warrants/options is dependent primarily on the market price and overall market
liquidity of the Company’s securities at or near the expiry date of such warrants/options (over which the Company has no control) and therefore there can be no guarantee that any existing warrants/options will be exercised. The Company has
also successfully generated operating funds through the sale of certain of its resource related investments, some of which had significantly increased in value since their acquisition. However, such returns are subject to fluctuations in the market
for the shares of the companies in which the Company has invested, and therefore there can be no assurance that the Company will continue to be able to generate significant additional funds through the liquidation of its investments. As illustrative
of this, the current market conditions for junior resource equities have resulted in a significant decline in the market value, and hence the price at which the Company can sell, any of its remaining resource related investments, and the Company
does not presently envision raising any further significant funds through the sale of such investments. In addition, the Company can raise funds through the sale of interests in its mineral properties.
In 2013 the Company successfully secured funding through the sale of senior secured notes and establishing secured lines of credit, which, while they generate working capital, also bring with them significant interest expense. In addition, as such
financings are denominated in US dollars, they increase the foreign exchange loss risk to the Company as the US-Canadian exchange rate may be significantly lower upon repayment that when the funding was initially secured or advanced.
On August 9, 2013 the Company completed a private placement of senior secured notes (the “Kopple Notes”) in the aggregate principal amount of USD 5,700,000 with entities controlled by Robert C. Kopple of Los Angles, California, USA (the
“Kopple Lenders”). The full proceeds of the Kopple Notes were used to pay off the indebtedness owing to the holders of certain senior secured notes issued in April 2013 immediately following closing of the Kopple Note transaction.
Kopple Notes in the amount of USD 3,700,000 are due no later than March 14, 2014, while USD 2,000,000 of the Kopple Notes is due on August 8, 2014. Interest will accrue at the rate of 10 per cent per year, payable quarterly. The Kopple Notes are
secured by a general security agreement over the assets of the Company, as well as a specific pledge of the shares of Cardero Coal. Cardero Coal also provided a corporate guarantee. The Kopple Notes may be redeemed by the Company at any time at par
plus accrued interest. Should there be a change of control of the Company or Cardero Coal while the Kopple Notes remain outstanding, other than a change of control caused by the Kopple Lenders or their associates or affiliates, the holders of the
Kopple Notes will have the right to put the Kopple Notes to the Company for an amount equal to 110% of par plus accrued interest.
As additional consideration for purchasing the Kopple Notes, the Kopple Lenders were issued transferrable warrants (“August Kopple Warrants”) to purchase an aggregate of 28,359,066 common
shares of the Company. The August Kopple Warrants have a term of seven years, and are exercisable at a price of 9.5 cents.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 21 |
On December 5, 2013 the Company completed the implementation of a USD 5,000,000 million line of credit (“Credit Line”) from the Kopple Lenders. The Credit Line reflects or includes all amounts advanced by the Kopple Lenders since the
purchase of the Kopple Notes, interest due under the Kopple Notes, and amounts to be advanced in the future. Interest is payable by the Company on the amount outstanding under the Credit Line from time to time at the rate of 10% per annum. The
security granted by the Company in connection with the Kopple Notes will extend to all indebtedness of the Company under the Credit Line. In conjunction with the establishment of the Credit Line, the maturity date for USD 3,700,000 million of the
Kopple Notes was extended from December 31, 2013 until February 28, 2014. If the USD 3,700,000 of the Kopple Notes is still outstanding at such time, the Credit Line will also be used to repay this amount. All amounts outstanding under the Credit
Line are due and payable on or before January 5, 2016. The Kopple Lenders will have the right to seek representation on the Company’s board of directors.
As additional consideration for the establishment and funding of the Credit Line, the Company agreed to issue to the Lenders transferrable common share purchase warrants to purchase an aggregate of 38,417,398 common shares of the Company (the
“December Kopple Warrants”). Of this number, 28,359,066 were issued to the Kopple Lenders on the closing of the Credit Line on December 5, 2013. The issuance of the additional 10,058,330 December Kopple Warrants is subject to the
approval thereof by the Company’s shareholders. The December Kopple Warrants have a term of seven years, and are exercisable at a price of $0.139.
In December, 2013, the Company successfully completed a number of debt settlements with a number of arm’s length creditors. Pursuant to such settlements, on December 12, 2013, the Company settled an aggregate of $2,690,473 of outstanding
trade debts in consideration of the payment, either on closing or over time, of an aggregate of $1,038,367 in cash plus the issuance of 3,219,617 common shares at a deemed price of $0.16 per share. The Company continues to seek to negotiate
additional settlements with other creditors for cash, or cash plus shares.
The Company expects that it will operate at a loss for the foreseeable future. While the Company has secured financing through the establishment of the Credit Line, the Company requires additional funding in order to carry on business and meet
its objectives of advancing the Carbon Creek project. The Company is focussed on securing additional funding but, at this time, currently has no funding commitments or arrangements for additional financing beyond the Credit Line and there can be no
assurance that it will be successful in doing so.
As January 31, 2014, the Company reported cash and cash equivalents of $378,994 compared to $291,277 at October 31, 2013. The change in cash and cash equivalents over the year is comprised of funds used by investing activities of
$745,311 and $2,835,943 from operations, and $3,668,971 provided by financing activities due to drawdowns under the Credit Line. As at January 31, 2014, the Company had a working capital deficit of $4,093,161 compared to working
capital of $6,498,875 at October 31, 2013.
The Company has recently taken steps to reduce its cash requirements, including terminating all of the employees of Cardero Coal and several of the Company’s employees, terminating certain consulting agreements, implementing a 20% reduction in
the salaries of the remaining employees of the Company, stopping work on the BFS and determining not to proceed with application for an EAC for Carbon Creek, selling off or shutting down the operations of its subsidiaries in Mexico, Peru and
Argentina and reducing its office space and concurrent expenses. The Company also
plans to shut down its materials testing laboratory in South Carolina and to
dispose of the existing laboratory equipment.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 22 |
The Company anticipates that its monthly burn rate for general
and administrative expenses is approximately $175,000, and that the undrawn
amount available under its current secured line of credit is approximately USD
2.2M ($2,220,000). This amount is sufficient to fund the Company’s anticipated
general and administrative expenditures for the balance of the fiscal year
ending October 31, 2014. However, in order to implement the proposed New PFS,
and to be able to make a $500,000 advance royalty payment due on June 2, 2014 in
respect of its Carbon Creek Coal Lease, the Company will be required to raise
additional funding. If the Company is unsuccessful in doing so, then it will
not be able to proceed with the New PFS, and will likely lose or be required to
surrender its interest in the Carbon Creek Coal Lease, which will significantly
and materially adversely affect the Carbon Creek project and the value thereof
to the Company, as the Carbon Creek Coal Lease represents approximately 50% of
the estimated coal resource at Carbon Creek. The Company is presently
negotiating with the lessor under the Carbon Creek Coal Lease to extend the
payment dates for the advance royalties due under that lease, but there can be
no assurance that it will be successful in doing so.
The Company has no exposure to any asset-backed commercial
paper. Other than cash held by its subsidiaries for their immediate operating
needs in the United States, Argentina, Peru and Ghana, all of the Company’s cash
reserves are on deposit with major financial institutions or invested in
Government of Canada Treasury Bills or Banker’s Acceptances issued by major
Canadian chartered banks. The Company does not believe that the credit,
liquidity or market risks with respect thereto have increased as a result of the
current market conditions. However, in order to achieve greater security for the
preservation of its capital, the Company has, of necessity, been required to
accept lower rates of interest which has also lowered its potential interest
income.
There have not been any material changes in the Company’s
contractual obligations for mineral property lease and option payments and
committed operating lease obligations as disclosed in its annual MD&A during
the period ended January 31, 2014 or to the date of this MD&A.
OFF BALANCE-SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
RELATED PARTY TRANSACTIONS
During the three months ended January 31, 2014, the Company
entered into the following transactions with related parties and paid or accrued
the following amounts, excluding share-based payment charges in connection
therewith:
| Name |
Relationship |
Purpose of transaction |
|
Amount |
|
| Hendrik van Alphen |
CEO, President
& a Director of the Company |
Wages and
Salaries |
$ |
52,000 |
|
| |
|
|
|
|
|
| Lawrence W Talbot |
VP & General
Counsel of the Company |
Wages and
Salaries |
$ |
20,000 |
|
| |
|
|
|
|
|
| Blaine Bailey |
CFO of the
Company |
Wages and
Salaries |
$ |
40,000 |
|
| |
|
|
|
|
|
| Glenn Hoffman |
CEO of Cardero
Iron Ore |
Wages and
Salaries($US) |
$ |
26,666 |
|
| |
|
|
|
|
|
| Marla Ritchie |
Corporate
Secretary of the Company |
Wages and
Salaries |
$ |
24,000 |
|
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 23 |
| Name |
Relationship |
Purpose of transaction |
|
Amount |
|
| |
|
|
|
|
|
|
Stephan Fitch |
Director of the Company |
Director's fees |
$ |
1,000 |
|
|
|
|
|
|
|
|
|
Stephan Fitch |
Director of the Company |
Consulting fees |
$ |
6,000 |
|
|
|
|
|
|
|
|
|
Leonard Harris |
Director of the Company |
Director's fees |
$ |
1,000 |
|
|
|
|
|
|
|
|
|
Lawrence W. Talbot Law Corporation |
Company controlled by an
officer of the Company |
Professional fees |
$ |
22,068 |
|
|
|
|
|
|
|
|
|
Acuitas Consulting Ltd. |
Company controlled by Executive Vice President of the
Company |
Consulting fees |
$ |
48,000 |
|
During the period ended January 31, 2014 and to the date of
this MDA the following stock options where granted to related parties:
| |
(a) |
On February 7, 2014, there were 2,036,000 stock options,
exercisable at $0.18 per share until February 7, 2016, granted to related
parties, as follows: |
| Name |
Relationship |
Options |
| Hendrik van Alphen |
CEO & President of the Company |
600,000 |
| Keith Henderson |
Executive Vice-President of the Company |
600,000 |
| Stephan Fitch |
Director of the Company |
336,000 |
| Blaine Bailey |
CFO of the Company |
150,000 |
| Marla Ritchie |
Corporate Secretary of the Company |
150,000 |
PROPOSED TRANSACTIONS
Except as noted elsewhere in this MD&A, although the
Company is currently investigating/negotiating with a number of potential
financing sources for equity or debt financings and is entertaining proposals
for the sale or option/joint venture of one or more of its properties, as at the
date of this MD&A there are no proposed transactions where the Board of
Directors, or senior management who believe that confirmation of the decision by
the Board is probable, have decided to proceed with and which are not disclosed
previously or herein.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements requires management to
use judgment in applying its accounting policies and estimates and assumptions
about the future. Estimates and other judgments are continuously evaluated and
are based on management’s experience and other factors, including expectations
about future events that are believed to be reasonable under the circumstances.
The following discusses the most significant accounting judgments and estimates
that the Company has made in the preparation of the financial statements.
Mineral property impairment
At the end of each reporting period, the Company assesses each
of its mineral resource properties to determine whether any indication of
impairment exists. Judgment is required in determining whether indicators of
impairment exist, including factors such as the period for which the Company has
the right to explore, expected renewals of exploration rights, whether
substantive expenditures on further exploration and evaluation of resource
properties are budgeted and results of exploration and evaluation activities on the exploration and evaluation assets. Management
has assessed impairment indicators on the Company’s mineral properties and has
concluded that impairment indicators on the TiTac and Longnose properties in the
USA and the Sheini property in Ghana existed as of October 31, 2013. The Company
has no further exploration or evaluation expenditures planned or budgeted on
these properties. The Company has concluded that no impairment indicators exist
on the Carbon Creek property. For the Carbon Creek property, the agreements are
in good standing, further exploration is planned once additional financing has
been obtained and the results of exploration and evaluation to date indicate
that a commercial viable deposit exists. Based on these factors and an updated
property valuation which demonstrates the carrying value will be fully
recovered, the Company concluded that no impairment was required on the Carbon
Creek property as at January 31, 2014.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 24 |
CHANGES IN ACCOUNTING POLICIES, INCLUDING INITIAL ADOPTION
Please refer to note 2 of the January 31, 2014 the condensed
interim consolidated financial statements for a comprehensive review of the
accounting policies adopted during the current period.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
The Company’s cash at January 31, 2014 was $378,994 of which
$228,537 was held in US, Argentinean, Ghanaian and Peruvian currencies.
The Company’s receivables and payables at January 31, 2014 were
normal course business items. The accounts receivable are settled on a regular
basis. The Company’s investments in Abzu, Wealth, Artha, and Xiana are carried
at quoted market value or an estimate thereof, and are classified as
“available-for-sale” for accounting purposes. All resource related investments
in warrants are classified as fair value through profit or loss and are
considered derivative financial instruments where changes to the fair value are
included in net income. The Company intends to dispose of its resource-related
investments as necessary to fund ongoing operations, although the current market
prices and lack of liquidity for certain of such investments seriously affects
the Company’s ability to so dispose of those investments.
EVALUATION OF INTERNAL CONTROL OVER FINANCIAL REPORTING
Internal control over financial reporting means a process
designed by, or under the supervision of, the Company’s certifying officers, and
effected by the Company’s board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with the Company’s GAAP and includes those policies and procedures that:
| |
(a) |
pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of
the assets of the Company; |
| |
|
|
| |
(b) |
are designed to provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with the Company’s GAAP, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and |
| |
|
|
| |
(c) |
are designed to provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on
the annual financial statements or interim financial
statements. |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies and procedures
may deteriorate.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 25 |
The Company’s management, including the CEO and CFO, have
evaluated the effectiveness of the Company’s internal control over financial
reporting as of January 31, 2014. This evaluation was based on the framework in
Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on that assessment, management concluded that the
Company’s internal control over financial reporting was not effective as of
January 31, 2014.
Material Weakness
A material weakness is a deficiency (as defined in PCAOB
Auditing Standard No 5), or a combination of deficiencies, such that there is a
reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected on a timely basis.
As of January 31, 2014, the Company identified the following
material weakness that applies to both disclosure controls and procedures and
internal controls over financial reporting;
Due to the significantly reduced number of employees over prior
years the Company does not have sufficient resources for reviewing the financial
statements and cannot maintain adequate segregation of duties as is necessary to
ensure complete and accurate financial reporting. Specifically, the Company’s
Chief Financial Officer is responsible for preparing, authorizing and reviewing
information that is integral to the preparation of financial reports. He is also
responsible for preparing and reviewing the resulting financial reports. The
weakness has the potential to result in material misstatements in the Company’s
consolidated financial statements that would not be prevented or detected, and
as such has been determined to be a material weakness in internal controls over
financial reporting which also impacts the Company’s disclosure controls and
procedures.
As of the date of this report, management has not yet developed
a plan to remediate the material weakness. Management has concluded that, taking
into account the present stage of the Company’s development and the significant
difficulty in securing ongoing operating funding, the Company does not have
sufficient size and scale to warrant, and cannot realistically afford, the
hiring of the additional staff that would be required to correct the weakness at
this time.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The Chief Executive Officer and Chief Financial Officer have
concluded that there has been no change in the Company’s internal control over
financial reporting during the period beginning on November 1, 2013 and ended on
January 31, 2014, that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 26 |
DISCLOSURE OF OUTSTANDING SHARE DATA
| 1. |
Authorized and Issued capital stock: As at January 31,
2014: |
| |
Authorized |
Issued |
Book Value |
| |
An unlimited number of common shares without par value |
117,266,887 |
$126,146,646 |
As at March 13, 2014:
| |
Authorized |
Issued |
Book Value |
| |
An unlimited number of common shares without par value |
117,366,887 |
$126,157,646 |
| 2. |
Options Outstanding: As at January 31,
2014: |
| |
Number |
Exercise Price |
Expiry Date |
| |
25,000 |
$ 1.16 |
March 23, 2014 |
| |
125,000 |
$ 0.78
|
September 27, 2014 |
| |
200,000 |
$ 0.45 |
January 4, 2015 |
| |
2,125,000 |
$ 0.20
|
May 28, 2015 |
| |
6,804,000 |
$ 0.11 |
July 3, 2020 |
| |
|
|
|
| |
9,279,000 |
|
|
As March 13, 2014:
| |
Number |
Exercise Price |
Expiry Date |
| |
25,000 |
$ 1.16 |
March 23, 2014 |
| |
125,000 |
$ 0.78
|
September 27, 2014 |
| |
200,000 |
$ 0.45 |
January 4, 2015 |
| |
2,125,000 |
$ 0.20
|
May 28, 2015 |
| |
6,704,000 |
$ 0.11 |
July 3, 2020 |
| |
2,036,000 |
$ 0.18 |
February 6, 2016 |
| |
|
|
|
| |
11,215,000 |
|
|
| 3. |
Warrants Outstanding: As at January 31,
2014: |
| |
Number |
Exercise Price |
Expiry Date |
| |
123,610 |
$
0.50 |
February 18, 2014 |
| |
28,359,066 |
$
0.095 |
August 9, 2020 |
| |
28,539,066 |
$ 0.139 |
December 5, 2020 |
| |
|
|
|
| |
56,841,742 |
|
|
| Cardero Resource Corp. |
|
| Form 51-102F1 |
|
| Management Discussion & Analysis |
|
| Three months
ended January 31, 2014 |
Page 27 |
As at March 13, 2014:
| Number |
Exercise Price |
Expiry Date |
|
28,359,066 |
$ 0.095 |
August 9, 2020 |
|
28,539,066 |
$ 0.139 |
December 5, 2020 |
|
56,898,132 |
|
|
ADDITIONAL SOURCES OF INFORMATION
Additional disclosures pertaining to the Company, including its
most recent Annual Information Form, financial statements, management
information circular, material change reports, press releases and other
information, are available on the SEDAR website at www.sedar.com or on the Company’s website at www.cardero.com. Readers are urged to review these
materials, including the technical reports filed with respect to the Company's
mineral properties.
