Pardee Resources has been written up twice already: in 2013 (at $204/share) and 2018 (at
$189/share). We submit it again at $152/share. We will use 2019 numbers as that is the most
recent annual; the company puts out brief quarterlies that in 2020 are generally consistent with
what we write below.
The company remains much the same as it was: 161,225 acres of timber & surface (about 0.24
acres / share), 151 mmtons of high-quality metallurgical coal (and 177 mmtons of thermal), 29
bcfe of oil/gase, 11.9 mw of solar capacity, and 680 acres of agricultural properties (leased, not
owned). The company has no debt and, we estimate, $33/share in cash. Book value was $238
at the end of 2019. The share count has been shrinking and the company pays a regular
annualized 4.7% dividend, sometimes supplemented with a special at year-end.
Most of the timberland is hardwoods, located in West Virginia. Considerable acreage has been
owned for 100+ years by Pardee and predecessor companies; this acreage is on the books for
prices that are far below current market prices. Valuations have not occurred in a number of
years, but in 2014 the company had an appraisal of 136,200 acres, of which 84% was forested.
The valuation estimated $885 / acre in standing timber at that time. Since Pardee’s long-held
policy has been to cut less than growth, biomass is almost certainly higher (a reasonable
estimate would be 10-15%), and value per board-foot is probably higher as well (over the long
run, one typically gets at least inflation). This $885 does not include the value of the land itself
or any associated mineral rights. Much of the remaining land is softwoods, located closer to
populated areas in Virginia. The wood is worth less and the land is worth more.
At Pardee’s current market price, a buyer is paying $626 / acre, and getting all of the coal, oil,
gas, solar capacity, agricultural endeavours, and cash for free. It doesn’t take a rocket scientist
to realise that if the company liquidated tomorrow shareholders would walk away with
considerably more than the market price.
In terms of changes since 2018, mostly the news has been positive. The board is smaller
(although still in our opinion too big and far too highly paid). The company has decided to
comply with SEC Rule 15c2-11. The company has bought back shares and paid special
dividends. With the exception of the Board, the company seems to watch expenses with some
care: the annual report notes that at the end of 2019, Pardee had fewer employees than it did in
1990, but book value is over seven times higher.
Revenues come from a mix of natural resources, mostly on a royalty basis. Pardee is generally
not an operating company. The largest revenue source is coal at 43%. Undoubtedly this is a
major part of why the company’s shares have been languishing. The company is mostly out of
the thermal coal business (10% of coal royalties or 4% of sales), although it still holds
substantial reserves. One could view their thermal coal reserves as a free option in case
technology or market needs change substantially. In contrast, the company’s metallurgical coal
reserves are still very important and very profitable. Oil and gas (mostly gas) is 20% of sales;
timber and surface 14%; agriculture 13%; and solar energy 10%. There is potential in the large
timber properties for carbon credits or related kinds of income.
