Chinese firm demands bargain on Cardero’s Pampa de Pongo

Vancouver – After missing a May 17 payment to Cardero Resources (CDU-T, CDY-X) for the Pampa de Pongo iron-ore project in Peru, Nanjinzhao Group, a Chinese company, has told Cardero it wants a better deal.

“You hope you’re not the guy in that story,” Cardero president Henk van Alphen says.

News of the demand hammered Cardero’s share-price which fell 32¢ to close at $1.02.

According to Cardero, Nanjinzhao, which had agreed to buy Pampa de Pongo for US$200 million last fall, cited tight credit markets for being unable to muster necessary funds to meet the sale price.

The Oct. 24, 2008, agreement, initially had Nanjinzhao making two payments to Cardero: US$10 million was due Mar. 17, 2008, and US$190 million, Sept. 17, 2009.

Payment appeared to be on track, and in fact ahead of schedule, as recently as Feb. 11 when Nanjinzhao made a US$2-million advance payment so it could start geotechnical drilling even before Cardero transferred ownership of the project to it.

But then Mar. 18 Nanjinzhao requested an extension on the US$10 million payment.

Then Nanjinzhao chairman Duan Lianwen said in a Cardero press release that while the company was “fully committed to completing the purchase” of Pampa de Pongo, it needed the extension while it waited on approvals from the Chinese central government.

At the time Nanjinzhao reported it had received approval from city, district and provincial governments. Cardero agreed with the request and gave Nanjinzhao until May 17 to make the US$10 million payment.

Now, however, with Nanjianzhao’s refusal to make even the US$10 million payment and its demand for a lower overall price, Cardero looks to be in a tough situation with few buyers in a depressed iron-ore market where there is no lack of project on sale.

Though van Alphen does not think the earlier payment delay was a prelude to Nanjianzhao’s current strong-arming, he says that Nanjianzhou has “become much more aware, if you look at what’s been happening in the iron-ore business, of the fact that iron-ore prices are much more under pressure.”

Van Alphen says negotiations with Nanjianzhao should be fairly quick and are not part of a long term negotiating ploy on the Chinese company’s part. “Basically everybody knows where everybody is standing,” he says. “Now it is a matter of the final arm twisting.”

As outlined in a scoping study Pampa de Pongo, 38 km away from San Juan, Peru, is to annually produce 15 million tonnes of iron ore pellets over a 24-year mine life from an inferred mineral resource of 863 million tonnes grading 41.3% iron, 0.07 gram gold per tonne and 0.1% copper.