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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

[   ]  Registration Statement pursuant to Section
12(b) or 12(g) of the Securities Exchange Act of 1934

Or

[X]  Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended October 31, 2013

Or

[   ]  Transition Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________________ to
____________________

Or

[   ] Shell Company Report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934

Commission file number 001-32345

CARDERO RESOURCE CORP.(Exact name of Registrant as specified in its charter)

British Columbia, Canada(Jurisdiction of incorporation or organization)

Suite 2300  1177 West Hastings StreetVancouver, British Columbia, Canada, V6E
2K3(Address of principal executive offices)

Lawrence W. Talbot, Telephone: (604) 408-7488, Facsimile:
(604) 408-7499Suite 2300  1177 West Hastings Street, Vancouver,
British Columbia, Canada, V6E 2K3(Name, Telephone ,
E-Mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section
12(b) of the Act: None

Securities registered or to be registered pursuant to Section
12(g) of the Act:

Title of each class:Common Shares, no par
value

Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: None

At October 31, 2013, the registrant had outstanding 113,436,270
common shares without par value.

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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
[   ]      No [X]

If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. Yes [ 
 ]      No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]    
 No [   ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [   ]      No [   ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. Large
accelerated filer [   ] Accelerated filer [   ] 
Non-accelerated filer [X]

Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:

|U.S. GAAP [   ] | International Financial Reporting Standards as
      issued [X] | Other [   ]
|--------------- | --------------------------------------------------------------- | -----------
|                | by the International Accounting Standards
    Board             |            

If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant
has elected to follow. Item 17 [   ]     
Item 18 [   ]

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ]      No [X]

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TABLE OF CONTENTS

|                            |                                                       |                                                            |     
|--------------------------- | ----------------------------------------------------- | ---------------------------------------------------------- | ----
|                            |                                                       |                                                            | Page
|TABLE OF CONTENTS           | 1                                                    
|                            |                                                       |                                                            |     
|GLOSSARY OF TERMS           | 4                                                    
|                            |                                                       |                                                            |     
|FORWARD-LOOKING INFORMATION | 9                                                    
|                            |                                                       |                                                            |     
|PART I                      |                                                       |                                                            | 11  
|                            |                                                       |                                                            |     
|ITEM 2.                     | OFFER
    STATISTICS AND EXPECTED TIMETABLE           | 12                                                        
|                            |                                                       |                                                            |     
|ITEM 3.                     | KEY
    INFORMATION                                   | 12                                                        
|                            |                                                       |                                                            |     
|                            | 3.A                                                   | Selected
      Financial Data                              | 12  
|                            |                                                       |                                                            |     
|                            | 3.B                                                   | Capitalization
      and Indebtedness                      | 13  
|                            |                                                       |                                                            |     
|                            | 3.C                                                   | Reasons for the
      Offer and Use of Proceeds            | 14  
|                            |                                                       |                                                            |     
|                            | 3.D                                                   | Risk Factors                                               | 14  
|                            |                                                       |                                                            |     
|ITEM 4.                     | INFORMATION ON
    THE COMPANY                        | 25                                                        
|                            |                                                       |                                                            |     
|                            | 4.A                                                   | History and
      Development of the Company               | 25  
|                            |                                                       |                                                            |     
|                            | 4.B                                                   | Business Overview                                          | 30  
|                            |                                                       |                                                            |     
|                            | 4.C                                                   | Organizational
      Structure                             | 36  
|                            |                                                       |                                                            |     
|                            | 4.D                                                   | Property, Plants
      and Equipment                       | 37  
|                            |                                                       |                                                            |     
|ITEM 4A.                    | UNRESOLVED
    STAFF COMMENTS                         | 49                                                        
|                            |                                                       |                                                            |     
|ITEM 5.                     | OPERATING AND
    FINANCIAL REVIEW AND PROSPECTS      | 50                                                        
|                            |                                                       |                                                            |     
|                            | 5.A                                                   | Operating Results                                          | 51  
|                            |                                                       |                                                            |     
|                            | 5.B                                                   | Liquidity and
      Capital Resources                      | 54  
|                            |                                                       |                                                            |     
|                            | 5.C                                                   | Research and
      Development, Patents and Licences, etc. | 56  
|                            |                                                       |                                                            |     
|                            | 5.D                                                   | Trend Information                                          | 56  
|                            |                                                       |                                                            |     
|                            | 5.E                                                   | Off-Balance Sheet
      Arrangements                       | 56  
|                            |                                                       |                                                            |     
|                            | 5.F                                                   | Tabular
      Disclosure of Contractual Obligations        | 56  
|                            |                                                       |                                                            |     
|ITEM 6.                     | DIRECTORS,
    SENIOR MANAGEMENT AND EMPLOYEES        | 57                                                        
|                            |                                                       |                                                            |     
|                            | 6.A                                                   | Directors and
      Senior Management                      | 57  
|                            |                                                       |                                                            |     
|                            | 6.B                                                   | Compensation                                               | 60  
|                            |                                                       |                                                            |     
|                            | 6.C                                                   | Board Practices                                            | 66  
|                            |                                                       |                                                            |     
|                            | 6.D                                                   | Employees                                                  | 67  
|                            |                                                       |                                                            |     
|                            | 6.E                                                   | Share Ownership                                            | 68  
|                            |                                                       |                                                            |     
|ITEM 7.                     | MAJOR
    SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 72                                                        
|                            |                                                       |                                                            |     
|                            | 7.A                                                   | Major
      Shareholders                                   | 72  
|                            |                                                       |                                                            |     
|                            | 7.B                                                   | Related Party
      Transactions                           | 73  
|                            |                                                       |                                                            |     
|ITEM 8.                     | FINANCIAL
    INFORMATION                             | 75                                                        

1

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|          | 8.A                                                                                        | Consolidated
      Statements and Other Financial Information | 75
|--------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------- | --
|          |                                                                                            |                                                               |   
|          | 8.B                                                                                        | Significant
      Changes                                     | 76
|          |                                                                                            |                                                               |   
|ITEM 9.   | THE OFFER AND
    LISTING                                                                  | 77                                                           
|          |                                                                                            |                                                               |   
|          | 9.A                                                                                        | Offer and Listing
      Details                               | 77
|          |                                                                                            |                                                               |   
|          | 9.B                                                                                        | Plan of
      Distribution                                    | 80
|          |                                                                                            |                                                               |   
|          | 9.C                                                                                        | Markets                                                       | 80
|          |                                                                                            |                                                               |   
|          | 9.D                                                                                        | Selling
      Shareholders                                    | 80
|          |                                                                                            |                                                               |   
|          | 9.E                                                                                        | Dilution                                                      | 80
|          |                                                                                            |                                                               |   
|          | 9.F                                                                                        | Expenses of the
      Issue                                   | 80
|          |                                                                                            |                                                               |   
|ITEM 10.  | ADDITIONAL
    INFORMATION                                                                 | 80                                                           
|          |                                                                                            |                                                               |   
|          | 10.A                                                                                       | Share Capital                                                 | 80
|          |                                                                                            |                                                               |   
|          | 10.B                                                                                       | Memorandum and
      Articles of Association                  | 80
|          |                                                                                            |                                                               |   
|          | 10.C                                                                                       | Material
      Contracts                                      | 84
|          |                                                                                            |                                                               |   
|          | 10.D                                                                                       | Exchange Controls                                             | 85
|          |                                                                                            |                                                               |   
|          | 10.E                                                                                       | Taxation                                                      | 86
|          |                                                                                            |                                                               |   
|          | 10.F                                                                                       | Dividends and
      Paying Agents                             | 94
|          |                                                                                            |                                                               |   
|          | 10.G                                                                                       | Statement by
      Experts                                    | 94
|          |                                                                                            |                                                               |   
|          | 10.H                                                                                       | Documents on
      Display                                    | 95
|          |                                                                                            |                                                               |   
|          | 10.I                                                                                       | Subsidiary
      Information                                  | 95
|          |                                                                                            |                                                               |   
|ITEM 11.  | QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET **RISK**                         | 95                                                           
|          |                                                                                            |                                                               |   
|ITEM 12.  | DESCRIPTION OF
    SECURITIES OTHER THAN EQUITY SECURITIES                                 | 98                                                           
|          |                                                                                            |                                                               |   
|PART II   |                                                                                            |                                                               | 98
|          |                                                                                            |                                                               |   
|ITEM 13.  | DEFAULTS,
    DIVIDEND ARREARAGES AND DELINQUENCIES                                        | 98                                                           
|          |                                                                                            |                                                               |   
|ITEM 14.  | MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY **HOLDERS AND USE OF
    PROCEEDS** | 98                                                           
|          |                                                                                            |                                                               |   
|ITEM 15.  | CONTROLS AND
    PROCEDURES                                                                | 98                                                           
|          |                                                                                            |                                                               |   
|ITEM 16A. | AUDIT
    COMMITTEE FINANCIAL EXPERT                                                       | 100                                                          
|          |                                                                                            |                                                               |   
|ITEM 16B. | CODE OF
    ETHICS                                                                         | 100                                                          
|          |                                                                                            |                                                               |   
|ITEM 16C. | PRINCIPAL
    ACCOUNTANT FEES AND SERVICES                                                 | 100                                                          
|          |                                                                                            |                                                               |   
|ITEM 16D. | EXEMPTIONS
    FROM THE LISTING STANDARDS FOR AUDIT **COMMITTEES**                         | 101                                                          
|          |                                                                                            |                                                               |   
|ITEM 16E. | PURCHASES OF
      EQUITY SECURITIES BY THE ISSUER AND **AFFILIATED
    PURCHASERS**       | 101                                                          
|          |                                                                                            |                                                               |   
|ITEM 16F. | CHANGE IN
    REGISTRANTS CERTIFYING ACCOUNTANT                                           | 101                                                          
|          |                                                                                            |                                                               |   
|ITEM 16G. | CORPORATE
    GOVERNANCE                                                                   | 101                                                          
|          |                                                                                            |                                                               |   
|ITEM 16H. | MINE SAFETY
    DISCLOSURE                                                                 | 101                                                          

2

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|PART III   |                            | 101
|---------- | -------------------------- | ---
|           |                            |    
|ITEM 17.   | FINANCIAL
      STATEMENTS | 101
|           |                            |    
|ITEM 18.   | FINANCIAL
      STATEMENTS | 101
|           |                            |    
|ITEM 19.   | EXHIBITS                   | 103
|           |                            |    
|SIGNATURES |                            | 105

3

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GLOSSARY OF TERMS

The following is a glossary of certain mining and other terms
used in this annual report:

| | Carbon Creek           | The metallurgical coal deposit located in the Peace River
      Coal District of northeast British Columbia, Canada in which Cardero Coal
      holds an interest                                                                  
| | ------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                          |                                                                                                                                                                                                                                    
| | Cardero Argentina      | Cardero Argentina, S.A., a wholly owned Argentinean
      subsidiary of Cardero                                                                                                                                                    
| |                          |                                                                                                                                                                                                                                    
| | Cardero Chile          | Compania Minera Cardero Chile Limitada, a wholly owned
      Chilean subsidiary of Cardero                                                                                                                                         
| |                          |                                                                                                                                                                                                                                    
| | Cardero Coal           | Cardero Coal Ltd., a wholly owned British Columbia
      subsidiary of Cardero (formerly Coalhunter Mining Corporation)                                                                                                          
| |                          |                                                                                                                                                                                                                                    
| | Cardero Ghana          | Cardero Ghana Ltd., a wholly owned Ghana subsidiary of
      Cardero Iron Ghana                                                                                                                                                    
| |                          |                                                                                                                                                                                                                                    
| | Cardero Hierro BVI     | Cardero Hierro Peru (BVI) Ltd., a wholly owned British
      Virgin Islands subsidiary of Cardero Iron BVI                                                                                                                         
| |                          |                                                                                                                                                                                                                                    
| | Cardero Hierro Peru    | Cardero Hierro del Peru, S.A.C., a wholly owned Peruvian
      subsidiary of Cardero Hierro BVI                                                                                                                                    
| |                          |                                                                                                                                                                                                                                    
| | Cardero Iron           | Cardero Iron Ore Company Ltd., a wholly owned British
      Columbia subsidiary of Cardero                                                                                                                                         
| |                          |                                                                                                                                                                                                                                    
| | Cardero Iron BVI       | Cardero Iron Ore Company (BVI) Ltd., a wholly owned
      British Virgin Islands subsidiary of Cardero Iron                                                                                                                        
| |                          |                                                                                                                                                                                                                                    
| | Cardero Iron Ghana     | Cardero Iron Ore Ghana (BVI) Ltd., a wholly owned British
      Virgin Islands subsidiary of Cardero Iron BVI                                                                                                                      
| |                          |                                                                                                                                                                                                                                    
| | Cardero Iron USA       | Cardero Iron Ore (USA) Inc., a wholly owned Delaware
      subsidiary of Cardero Iron                                                                                                                                              
| |                          |                                                                                                                                                                                                                                    
| | Cardero Management USA | Cardero Iron Ore Management (USA) Inc., a wholly owned
      Delaware subsidiary of Cardero Iron                                                                                                                                   
| |                          |                                                                                                                                                                                                                                    
| | Cardero Peru           | Cardero Peru, S.A.C., a wholly owned Peruvian subsidiary
      of Cardero                                                                                                                                                          
| |                          |                                                                                                                                                                                                                                    
| | CCDL                   | Cerro Colorado Development Ltd., a wholly owned British
      Columbia subsidiary of Cardero                                                                                                                                       
| |                          |                                                                                                                                                                                                                                    
| | CIPC                   | Cardero Intellectual Property Corp., a wholly owned
      British Columbia subsidiary of Cardero                                                                                                                                   
| |                          |                                                                                                                                                                                                                                    
| | clastic                | Pertaining to a rock or sediment composed principally of
      fragments derived from pre-existing rocks or minerals and transported some
      distance from their places of origin; also said of the texture of such a
      rock

4

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| | CLL           | Cardero Licensing Ltd., a wholly owned British Columbia
      subsidiary of Cardero                                                                                                                                                                                                                                                                                                                                                                       
| | --------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | cm            | Centimetres                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | CMTL          | Cardero Materials Testing Laboratory Ltd., a wholly owned
      Delaware subsidiary of Cardero                                                                                                                                                                                                                                                                                                                                                            
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Common Shares | The common shares without par value in the capital stock
      of Cardero as the same are constituted on the date hereof                                                                                                                                                                                                                                                                                                                                  
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Company       | Cardero and its consolidated subsidiaries, Cardero Coal,
      Cardero Iron, Cardero Argentina, Cardero Peru, Cardero Chile, CCDL, MMC,
      Cardero Iron USA, Cardero Management USA, Cardero Iron BVI, Cardero Hierro
      BVI, Cardero Hierro Peru, Cardero Iron Ghana, Cardero Ghana, CTL, CMTL,
      CLL and CIPC                                                                                                                                 
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | conglomerate  | A coarse grained clastic sedimentary rock, composed of
      rounded to sub-angular fragments larger than 2mm in diameter set in a
      fine-grained matrix of sand or silt, and commonly cemented by calcium
      carbonate, iron oxide, silica or hardened clay                                                                                                                                                                                       
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | CTL           | Cardero Technologies Ltd., a wholly owned British
      Columbia subsidiary of Cardero                                                                                                                                                                                                                                                                                                                                                                    
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | deformation   | A general term for the processes of folding, faulting,
      shearing, compression, or extension of rocks as a result of various earth
      forces                                                                                                                                                                                                                                                                                                       
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | deposit       | A mineralized body which has been physically delineated
      by sufficient drilling, trenching, and/or underground work, and found to
      contain a sufficient average grade of metal or metals to warrant further
      exploration and/or development expenditures. Such a deposit does not
      qualify as a commercially mineable ore body or as containing reserves or
      ore, unless final legal, technical and economic factors are resolved
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | diamond drill | A type of rotary drill in which the cutting is done by
      abrasion rather than percussion. The cutting bit is set with diamonds and
      is attached to the end of the long hollow rods through which water is
      pumped to the cutting face. The drill cuts a core of rock which is
      recovered in long cylindrical sections, an inch or more in diameter                                                                                     
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | dip           | The angle that a stratum or any planar feature makes with
      the horizontal, measured perpendicular to the strike and in the vertical
      plane                                                                                                                                                                                                                                                                                                      
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Director      | A member of the Board of Directors of Cardero                                                                                                                                                                                                                                                                                                                                                                                                             
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | disseminated  | Fine particles of mineral dispersed throughout the
      enclosing rock                                                                                                                                                                                                                                                                                                                                                                                   

5

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| | executive officer | When used in relation to any issuer (including Cardero)
      means an individual who is:
| | ------------------- | -----------------------------------------------------------------------------------------

| | (a) | the president of the issuer;                                                                                                                                                              
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                           
| | (b) | any vice-president of the issuer in charge of a principal
      business unit, division or function (such as sales, administration or
      finance); or                                  
| |     |                                                                                                                                                                                           
| | (c) | any officer of the issuer or any of its subsidiaries who
      performs a policy-making function or any other person who performs similar
      policy making functions for the issuer; or

| | Fe                 | Iron                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | footwall           | The mass of rock beneath a fault, orebody or mine
      working; especially the wall rock beneath an inclined vein or fault                                                                                                                                                                                                                                                                                                                                                                                           
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | FSI                | Free Swelling Index is a measure of the tendency of a
      coal to swell when heated under controlled conditions. Coking coal is best
      if it has a very narrow range of volatility and plasticity, and this is
      measured by the Free Swelling Index test. Tar content, volatile content
      and swelling index are used to select coals for coke blending                                                                                                                                              
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | gangue             | The valueless rock or mineral aggregates in an ore; that
      part of the ore that is not economically desirable but cannot be avoided
      in mining. It is separated from the ore minerals during concentration                                                                                                                                                                                                                                                                                                   
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | grade              | To contain a particular quantity of ore or mineral,
      relative to other constituents, in a specified quantity of rock                                                                                                                                                                                                                                                                                                                                                                                             
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | hanging wall       | The overlying side of an orebody, fault, or mine working,
      especially the wall rock above an inclined vein or fault                                                                                                                                                                                                                                                                                                                                                                                              
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | km                 | Kilometres                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | m                  | Metres                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | mm                 | Millimetres                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | magmatic           | Of, or pertaining to, or derived from, magma                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | metallurgical coal | A term used to describe varieties of bituminous coal that
      are converted into coke for use in the steelmaking process (also called
      Coking coal). This is hard coal with a quality that allows the
      production of coke suitable to support a blast furnace charge. Coking
      coals have a higher carbon content than steam (thermal) coals, which are
      mainly used in electricity generation. 1 tonne of coking coal produces
      1.37 tonnes of coke                                      
| |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | mineral reserve    | The economically mineable part of a measured or indicated
      mineral resource demonstrated by at least a preliminary feasibility study.
      This study must include adequate information on mining, processing,
      metallurgical, economic and other relevant factors that demonstrate, at
      the time of reporting, that economic extraction can be justified. A
      mineral reserve includes diluting materials and allowances for losses that
      may occur when the material is mined and processed

6

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| | mineral resource                                  | A concentration or occurrence of natural, solid,
      inorganic or fossilized organic material in or on the Earths crust in
      such form and quantity and of such a grade or quality that it has
      reasonable prospects for economic extraction. The location, quantity,
      grade, geological characteristics and continuity of a mineral resource are
      known, estimated or interpreted from specific geological evidence and
      knowledge. The term mineral resource covers mineralization and natural
      material of intrinsic economic interest which has been identified and
      estimated through exploration and sampling and within which mineral
      reserves may subsequently be defined by the consideration and application
      of technical, economic, legal, environmental, socio- economic and
      governmental factors. The phrase reasonable prospects for economic
      extraction implies a judgement by a qualified person (as that term is
      defined in NI 43-101) in respect of the technical and economic factors
      likely to influence the prospect of economic extraction. A mineral
      resource is an inventory of mineralization that, under realistically
      assumed and justifiable technical and economic conditions, might become
      economically extractable
| | --------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | mineralization                                    | The concentration of metals and their chemical compounds
      within a body of rock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | National Instrument 43- 101 or NI
      43- 101 | National Instrument 43-101 of the Canadian Securities
      Administrators entitled Standards of Disclosure for Mineral Projects                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | NSR                                               | Net smelter return                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | NYSE MKT                                          | NYSE MKT LLC                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | open pit                                          | A surface mine, open to daylight, such as a quarry. Also
      referred to as open-cut or open-cast mine                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | PCI coal                                          | Coal suitable for Pulverized Coal Injection. PCI allows
      coal to be directly injected into the blast furnace to provide the
      chemical reaction agents to convert iron ore to pig iron. PCI allows steam
      (thermal) coal to be used in the steel production process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | PFS                                               | The prefeasibility study carried out on Carbon Creek in
      2012                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | PPB or ppb                                      | Parts per billion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | PPM or ppm                                       | Parts per million                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | reverse circulation drilling                      | RC drilling is similar to air core drilling, in that the
      drill cuttings are returned to surface inside the rods. The drilling
      mechanism is a pneumatic reciprocating piston known as a hammer driving
      a tungsten-steel drill bit. Reverse circulation is achieved by blowing air
      down the rods, the differential pressure creating air lift of the water
      and cuttings up the inner tube, which is inside each rod. It reaches the
      bell at the top of the hole, then moves through a sample hose which is
      attached to the top of the cyclone. The drill cuttings travel around the
      inside of the cyclone until they fall through an opening at the bottom and
      are collected in a sample bag                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

7

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| | seam         | A stratum or bed of coal; a plane in a coal bed at which
      the different layers are easily separated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | SEC          | United States Securities and Exchange Commission                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Sheini       | The iron ore deposit(s) under lands subject to certain
      prospecting licenses granted by the Government of Ghana and covering lands
      located in the Zabzugu-Tatale District in the Northern Region of the
      Republic of Ghana                                                                                                                                                                                                                                                                                                                                                
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | stratigraphy | The arrangement of strata, especially as to geographic
      position and chronological order of sequence, e.g. the arrangement of
      sedimentary rocks in strata                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | strike       | The direction taken by a structural surface                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | tailings     | The material that remains after all metals considered
      economic have been removed from ore during milling                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | thermal coal | A term used to describe coal which is used primarily to
      generate heat. Also referred to as steam coal                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | TSE          | Toronto Stock Exchange                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | washability  | As applied to coal, the technical estimate of the
      potential extent of the extraction of valuable components from coals by
      the concentration of useful minerals. The washability characteristics of a
      coal sample are provided by obtaining liberation data on the raw coal
      sample. Liberation refers to the amount of physical breakage required to
      separate material of different material densities. Low density material is
      clean coal whereas high density material is reject (rock). The
      intermediate density material is called middlings.

8

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FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements and
forward-looking information (collectively, forward-looking statements) within
the meaning of applicable Canadian and U.S. 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 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
if a mineral deposit were developed and mined. Forward-looking statements are
typically identified by words such as: believe, expect, anticipate, intend,
estimate, postulate, project, 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:

- the Companys strategies and objectives, both generally and specifically in
  respect of Carbon Creek;
- 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;
- 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;
- 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;
- the Companys estimates of the quality and quantity of the resources and
  reserves at its mineral properties;
- 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;
- 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;
- general business and economic conditions;
- 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; and
- the Companys ability to negotiate acceptable option/joint venture
  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 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, to raise the necessary capital or
to be fully able to implement its business strategies, 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 annual report. Such statements are based on a number of
assumptions which may prove incorrect, including, but not limited to,
assumptions about:

9

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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;
- the level and volatility of the price of commodities, and coal in
  particular;
- general business and economic conditions;
- the timing of the receipt of regulatory and governmental approvals, permits
  and authorizations necessary to implement and carry on the Companys planned
  exploration programs, particularly at Carbon Creek;
- conditions in the financial markets generally;
- the Companys ability to secure the necessary consulting, drilling and
  related services and supplies on favourable terms in connection with its
  exploration programs;
- the Companys ability to attract and retain key staff;
- 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;
- the timing of the ability to commence and complete the planned work at
  Carbon Creek;
- 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;
- 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;
- 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.

Cautionary Note to U.S. Investors Concerning Reserve and
Resource Estimates

Except as otherwise indicated, the terms mineral
reserve, proven mineral reserve and probable mineral
reserve as used in this report are Canadian mining terms as defined in
accordance with NI 43-101 and the Canadian Institute of Mining, Metallurgy and
Petroleum (the CIM) - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as
amended. These definitions differ from the definitions in SEC Industry Guide 7
(SEC Industry Guide 7) under theSecurities Act of 1933, as amended.
Under SEC Industry Guide 7 standards, mineralization may not be classified as a
reserve unless the determination has been made that the mineralization
could be economically and legally produced or extracted at the time the reserve
determination is made. The SEC has taken the position that mineral reserves for
a mineral property may not be designated unless: (a) 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; (b) a historic
three-year average commodity price is used in any reserve or cash flow analysis
used to designate reserves; and (c) 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.

10

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In addition, the terms mineral resource, measured
mineral resource, indicated mineral resource and inferred
mineral resource as used in this report are defined in and required to be
disclosed by NI 43-101; 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 by U.S. companies 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 or that they can be mined
economically or legally. 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 that it can be economically or legally mined. 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 standards as in
place tonnage and grade without reference to unit measures.

Accordingly, information contained in this annual report may
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. In particular, the Company has
no known reserves under SEC Industry Guide 7 standards.

PART I

Effective from November 1, 2010, the Company adopted
International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB). Unless otherwise stated, all
information presented herein has been prepared in accordance with IFRS and all
prior period amounts have been reclassified to conform with IFRS. The Company
adopted IFRS on November 1, 2011, with a transition date of November 1, 2010.
Please note that the Companys prior annual consolidated financial statements
were prepared in accordance with Canadian generally accepted accounting
principles and included reconciliation to United States generally accepted
accounting principles, which may not be comparable to IFRS.

11

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ITEM
1.            
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM
2.             OFFER
STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM
3.             KEY
INFORMATION

3.A            
Selected Financial Data

The summary consolidated financial information set forth below
is extracted from and qualified in its entirety by reference to, and should be
read in conjunction with, the Companys audited consolidated financial
statements as of October 31, 2013, 2012 and 2011 and for the years ended October
31, 2013, 2012 and 2011, together with the notes thereto, which appear elsewhere
in this annual report. The summary consolidated financial information set forth
below also should be read in conjunction with the information appearing under
the heading Item 5  Operating and Financial Review and Prospects. The
following table of selected financial data has been derived from financial
statements prepared in accordance with IFRS, which differ in certain respects
from the principles the Company would have followed had its consolidated
financial statements been prepared in accordance with United States generally
accepted accounting principles. The Companys adoption date of IFRS was November
1, 2011 with a transition date of November 1, 2010. The Companys consolidated
financial statements as of and for the years ended October 31, 2013, 2012 and
2011 have been audited by PricewaterhouseCoopers LLP, Chartered Accountants.

The financial data set forth in this annual report is expressed
in Canadian dollars ($, Cdn$ or CAD) unless otherwise noted as reported in
United States dollars (US$ or USD).

|                                                   |   | For
      Years Ended October 31 |  
|-------------------------------------------------- | - | -------------------------------- | -
|                                                   |   | 2013                             |  
|                                                   |   |                                  |  
|Total Revenue (Interest income (expense))          | $ | (1,389,964                       | )
|Income (loss) from operations                      | $ | (29,947,850                      | )
|Income (loss) from continuing operations           | $ | (29,947,850                      | )
|Net income (loss)                                  | $ | (29,759,663                      | )
|Net income (loss) from operations per share        | $ | (0.27                            | )
|Income (loss) from continuing operations per share | $ | (0.27                            | )
|Basic and diluted net income (loss) per share      | $ | (0.27                            | )

12

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|                                          |   | As
    at October 31 | 
|----------------------------------------- | - | -------------------- | 
|                                          |   | 2013                 | 
|                                          |   |                      | 
|Total assets                              | $ | 89,114,381           | 
|Total liabilities                         | $ | 11,441,179           | 
|Total shareholders equity                | $ | 77,673,202           | 
|Number of Common
      Shares outstanding |   | 113,436,270          | 

The weighted average number of outstanding Common Shares used
to calculate net income (loss) from operations per share, income (loss) from
operations per share and basic and diluted net income (loss) per share are:
109,157,361 for the year ended October 31, 2013, and 91,537,423 for the year
ended October 31, 2012 and 68,988,456 for the year ended October 31, 2011.

Exchange Rate Data

The Company maintains its accounts in Canadian dollars. The
following tables indicate, for the periods indicated, information concerning the
exchange rate between the Canadian dollar and the U.S. dollar. The data provided
in the following tables are expressed in Canadian dollars per U.S. dollar and
are based on the noon buying rates published by the Bank of Canada for the U.S.
dollar.

On April 30, 2014, the exchange rate between the Canadian
dollar and the U.S. dollar expressed in Canadian dollars per U.S. dollar was
0.9127.

The high and low exchange rates expressed in Canadian dollars
per U.S. dollar for each month during the previous six months were as follows:

High
    LowApril, 2014
    0.9172
    0.9056March, 2014
    0.9119
    0.8888February 2014
    0.9141
    0.8932January 2014
    0.9399
    0.8909December 2013
    0.9440
    0.9314November 2013
    0.9592
    0.9408October 2013
    0.9706
    0.9527September 2013
    0.9741
    0.9480


The average exchange rates, expressed in Canadian dollars per
U.S. dollar, for the five most recent financial years, which were calculated by
using the average of the exchange rates expressed in Canadian dollars per U.S.
dollar as reported by the Bank of Canada on the last day of each month during
each such financial year, were as follows:

For Years Ended October 312013
    2012
    2011
    2010
    20090.9806
    1.0034
    0.9846
    1.0414
    1.1673


3.B            
Capitalization and Indebtedness

Not applicable.

13

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3.C            
Reasons for the Offer and Use of Proceeds

Not applicable.

3.D            
Risk Factors

The Company, and thus the securities of Cardero, should be
considered a speculative investment and investors should carefully consider all
of the information disclosed in this annual report prior to making an investment
in the Company. In addition to the other information presented in this annual
report, the following risk factors should be given special consideration when
evaluating an investment in any of Carderos securities.

The Companys independent registered public accounting firm
has included an explanatory paragraph relatingto the Companys ability
to continue as a going concern in its report on the Companys audited financialstatements

The report of the Companys independent registered public
accounting firm on the Companys financial statements for the year ended October
31, 2013 includes an explanatory paragraph stating that the Companys losses and
negative cash flows from operations and accumulated deficit at October 31, 2013
raise substantial doubt about its ability to continue as a going concern. If the
Company is unable to obtain sufficient funding, its business prospects,
financial condition and results of operations will be materially and adversely
affected and the Company may be unable to continue as a going concern. If the
Company is unable to continue as a going concern, it may have to liquidate its
assets and may receive less than the value at which those assets are carried on
its consolidated financial statements, and it is likely that investors will lose
all or a part of their investment. Future reports from the Companys independent
registered public accounting firm may also contain statements expressing doubt
about the Companys ability to continue as a going concern. If the Company seeks
additional financing to fund its business activities in the future and there
remains doubt about its ability to continue as a going concern, investors or
other financing sources may be unwilling to provide additional funding on
commercially reasonable terms or at all.

The Company may be required to cease operations unless it is
successful in raising additional 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 bankable feasibility study for Carbon Creek, and moving to shut down its
subsidiaries in Mexico (sold subsequent to October 31, 2013), Peru, Ghana and
the United States. The Company presently has substantial liabilities and
upcoming advance royalty payments in respect of portions of Carbon Creek, and
does not have the funds available to settle such liabilities or to make such
advanced royalty payments. 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 working capital 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.

The Success of the Company depends primarily on the
development and operation of Carbon Creek, which isthe Companys only
material project and may not be commercially viable at current coal prices

The Companys only material property at this time is Carbon
Creek, which is in the exploration stage. The Company has issued a
Pre-feasibility Study on Carbon Creek which indicates that the project generates
a positive return at the following coal prices: Hard Coking Coal (USD
200/tonne), High Vol Metcoal (USD 137/tonne) and Thermal Coal (USD 115/tonne).
The current quarterly contract pricing for these commodities as at April 30,
2014 is approximately as follows: Hard Coking Coal (USD 143/tonne), High Vol
Metcoal (USD 97/tonne) and Thermal Coal (USD 80/tonne), and the project may not
be commercially viable at current coal prices. While management is considering exploring
opportunities for optimizing the production profile and potentially reducing
project costs, there can be no assurance that any such efforts will be
successful or that coal prices will increase sufficiently to warrant a decision
to develop Carbon Creek. If Carbon Creek is not developed, or if Carbon Creek is
otherwise subject to deterioration, destruction or significant delay, the
Company may never generate revenues and shareholders may lose most or all of
their investment in the Common Shares.

14

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Risks Associated with Mineral Exploration

The Company has no known reserves on its interests in
exploration properties.

Other than on the Carbon Creek property, there are no known
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. The Company has no known reserves under SEC Industry Guide 7
standards. The Company has no mineral producing properties and has never
generated any revenue from its operations.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.

The Company faces risks related to exploration and
development, if warranted, of its properties.

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.

There are risks related to estimates of mineral reserves and
resources and production risks.

The mineral resource/reserve 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:

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 any commodities the Company may produce, or plan to produce,
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. The Company has no known reserves under
SEC Industry Guide 7 standards.

There are risks related to the acquisition of title to the
Companys mineral properties.

The acquisition of title to mineral properties is a very
detailed and time-consuming process. Title to, and the area of, mineral
concessions 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.

16

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Ownership, exploration and development of the Companys
properties are subject to government approvals and regulations.

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.

There are risks related to the acquisition by the Company of
mineral properties through agreements with third parties.

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 and/or advance royalty payments 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 advance royalty
payments or expenditures in a timely fashion may result in the Company losing
its interest in such properties. In particular, the Company has upcoming advance
royalty payments of $2,500,000 in respect of portions of Carbon Creek and does
not presently have the funds available to make such advance royalty payments.
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.

The ability of the Company to access its mineral properties
may be restricted.

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 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.

Mineral operations are subject to market forces outside of
the Companys control.

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.

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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.

The Company may not be able to obtain the permits and
licenses required for its operations.

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 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.

The mining industry is intensely competitive and the Company
is at a disadvantage in this regard.

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.

Mining and mineral exploration have substantial operational
risks which are 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.

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Risks Associated with Regulatory Requirements

The Company is subject to significant environmental
regulations that can change over time.

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.

The Company is subject to numerous regulatory requirements
which it may not be able to comply with.

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.

Risks Related to Financing

The Company has a history of losses and no revenues, and may
never become profitable.

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,
where there are resources, the Company has not defined or delineated any proven
or probable resources or reserves on any of its properties. The Company has
no known reserves under SEC Industry Guide 7 standards.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
or the sale or optioning of a portion of its interest in its mineral properties.
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, borrowing or through the sale or possible syndication of its
properties, there is no assurance that any such funds will be available 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.

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The Company will require additional capital to meet its
capital requirements for 2014 and for future fiscal years.

The Company does not have sufficient financial resources to
undertake all of its planned activities for 2014. The Companys ability to
continue its exploration, assessment, and development activities depends in part
on the Companys ability to obtain financing through joint ventures, debt
financing, equity financing, production sharing arrangements or some combination
of these or other means, and ultimately, commence operations and generate
revenue. There can be no assurance that any such arrangements will be concluded
and the associated funding obtained. There can be no assurance that the Company
will commence operations and generate sufficient revenues to meet its
obligations as they become due or will obtain necessary financing on acceptable
terms, if at all. The failure of the Company to meet its on-going obligations on
a timely basis could result in the loss or substantial dilution of the Companys
interests (as existing or as proposed to be acquired) in its properties. In
addition, should the Company incur significant losses in future periods, it may
be unable to continue as a going concern, and realization of assets and
settlement of liabilities in other than the normal course of business may be at
amounts significantly different from those in the financial statements included
in this annual report.

Currency fluctuations may adversely affect the Companys
operations.

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.

Risks Relating to an investment in securities of the
Company

There are significant risks that the Companys assumptions
underlying the estimates on which its preliminary feasibility study for
Carbon Creek are based may turn out to be incorrect.

The economic assumptions underlying the Norwest pre-feasibility
study on Carbon Creek are based upon both the Companys and outside experts
estimates of numerous factors, including, without limitation, future commodity
prices, future labour and machinery costs, future fuel costs, the amenability of
the proposed products to treatment, the future capacity of transportation
systems, the timing of the issuance of required permits and anticipated studies
to be completed. A material change in any of these could materially and
adversely affect the conclusions of the pre-feasibility study. For this reason,
undue reliance should not be placed upon such conclusions. The Company will be
required to prepare a feasibility study, which would likely result in the
refinement of or changes to such information, in order to refine such estimates
to the point where it may be possible to make a decision whether or not to
develop Carbon Creek, and such feasibility study is currently beyond the
financial capacity of the Company to prepare.

The Company is dependent upon certain 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.

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Management of the Company has 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.

Certain of the Companys directors and officers are also
directors and/or officers and/or shareholders of potential competitors of
the Company, giving rise to potential conflicts of interest.

Several of the Companys directors and officers are also
directors, officers and/or shareholders of other companies. Some of the
directors and officers of the Company are engaged and will continue to be
engaged in the search for additional business opportunities on behalf of other
corporations, and situations may arise where these directors and officers will
be in direct competition with the Company. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which could place the Company in a
worse position than if no conflict existed. Conflicts, if any, will be dealt
with in accordance with the relevant provisions of the Business Corporations Act
(British Columbia). The Board has resolved that any transaction either at the
Company level or of a subsidiary level, with entities having directors, officers
or significant shareholders in common, must be approved by disinterested Board
members. The Companys directors are required by law to act honestly and in good
faith with a view to the best interests of the Company and to disclose any
interest which they may have in any project or opportunity in respect of which
the Company is proposing to enter into a transaction.

There are risks related to stock market prices and volume
volatility.

In 2011, 2012 and 2013, 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 placees 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 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.

Shareholder interests may be diluted through the exercise of
warrants issued to the Kopple Lenders.

In August 2013, as part of a private placement of senior
secured notes in the principal amount of USD 5,700,000, and in December 2013, in
order to secure a USD 5,000,000 line of credit (as more further described in the
Item 4.A - History and Development of the Company), the Company issued warrants
to purchase 56,718,132 Common Shares and will issue additional
warrants exercisable to acquire 10,058,330 Common Shares (shareholder approval
to such issuance having been received on April 4, 2014). If these warrants are
exercised it will result in substantial dilution to existing shareholders.

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Shareholder interests may be diluted through the granting of
incentive stock options.

Because the success of the Company is highly dependent upon the
performance of its directors, officers and consultants, the Company has granted,
and will in the future grant, to some or all of its directors, officers and
consultants, options to purchase its Common Shares as non-cash incentives. Those
options may be granted at exercise prices below those for the Common Shares
prevailing in the public trading market at the time or may be granted at
exercise prices equal to market prices at times when the public market is
depressed. To the extent that significant numbers of such options may be granted
and exercised, the interests of the other shareholders of the Company may be
diluted.

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 was in its tax year ended October 31, 2013,
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). 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.

This paragraph is qualified in its entirety by the discussion
below under the heading Certain United States Federal Income Tax Consequences.
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.

It may be difficult to enforce judgements against management
or assets of the Company.

As some of the assets of the Company are located outside of
Canada and the United States, and certain of the directors and officers of
Cardero 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 the directors and
officers of Cardero residing outside of such country.

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Some of the Companys assets are located in countries where
there may be significant 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 its 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.

As a consequence of general economic conditions the Company
may be faced with an inability to access capital in order to continue its
operations.

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 resulted in the collapse of, and government intervention in, major banks,
financial institutions and insurers and created 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, 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.

Broker-dealers may be discouraged from effecting
transactions in Common Shares because they are considered a penny stock
and are subject to the penny stock rules.

The Common Shares are considered to be a penny stock. The SEC
has adopted Rule 15g-9 which generally defines penny stock to be any equity
security that has a market price (as defined) less than USD 5.00 per share or an
exercise price of less than USD 5.00 per share, subject to certain exceptions.
The Common Shares are covered by the penny stock rules, which impose additional
sales practice requirements on broker-dealers who sell to persons other than
established customers and accredited investors. The term accredited investor
refers generally to the categories of investors that satisfies Rule 501(a) under
the Securities Act. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC, which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the
transaction and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer quotations, and
the broker-dealer and salesperson compensation information, must be given to the
customer orally or in writing prior to effecting the transaction and must be
given to the customer in writing before or with the customers confirmation. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from these rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchasers written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for the stock that is subject to these
penny stock rules. Consequently, these penny stock rules may affect the ability
of broker-dealers to trade the Common Shares. The Company believes that the
penny stock rules discourage investor interest in and limit the marketability of
the Common Shares.

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General economic conditions may have a material adverse
effect on the Companys ability to continue in business.

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:

- 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; and
- 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.

The Common Shares are currently being quoted on the OTCQB
tier of the OTC Markets in the United States, as such, the liquidity of the
Common Shares in the United States may be limited.

The Common Shares were previously listed on the NYSE MKT in the
United States. Effective November 26, 2013, the Common Shares have been quoted
on the OTCQB tier of the OTC Markets (the OTCQB) in the United States. Stocks
quoted on the OTCQB ordinarily have much lower trading volume than in other
markets, such as the NYSE MKT, the Nasdaq Capital Market or the Nasdaq Global
Market. Fewer market makers take interest in shares traded over-the-counter, and
accordingly the markets for such shares are less orderly than is usual for NYSE
MKT stocks. As a result of the low trading volumes ordinarily obtained in OTCQB
and "pink sheet" markets, sales of the Common Shares in any significant amount
could not be absorbed without a dramatic reduction in price. Moreover, thinly
traded shares in the OTCQB and in the pink sheet markets are more susceptible to trading
manipulations than is ordinarily the case for more actively traded shares.

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The Company is involved in pending litigation which could
have a material effect on its financial condition.

On February 4, 2014, Gowling Lafleur Henderson LLP of
Vancouver, BC filed a notice of civil claim in the Supreme Court of British
Columbia against the Company seeking payment for certain legal fees and
disbursements in respect of legal services rendered in the amount of $732,143.46
plus interest and costs. On February 11, 2014, Gowling Lafleur Henderson LLP
obtained a Garnishing Order Before Judgement and served the same on the
Companys banker, resulting in the sum of approximately $109,000 in certain of
the Companys bank accounts (a combination of Canadian and United States
currencies) being paid into court and therefore unavailable to the Company. On
April 11, 2014, the Company applied to have the Garnishing Order set aside, and
a decision on such application was reserved by the Court and has not yet been
released. If the Garnishing Order is not set aside these funds will remain in
court and unavailable to the Company until such time as the taxation of the
Gowling Lafleur Henderson LLP accounts in question has been completed and may be
paid out to Gowling Lafleur Henderson LLP depending upon the outcome of the
taxation hearing. The taxation hearing is presently set for July 24, 2014, but
may be delayed depending upon the availability of parties or for other reasons.

On November 15, 2012, Carbon Mountain Drilling and Water
Services Ltd. of Prince George, British Columbia (Carbon Mountain), filed a
notice of civil claim in the Supreme Court of British Columbia against Cardero
Coal seeking payment for certain drilling services rendered in 2011 in the
amount of $770,393.48 plus damages for breach of contract and interest. On
January 10, 2013 Cardero Coal filed a response to the civil claim disputing
liability and the amount claimed and a counterclaim seeking damages for
negligence, breach of contract and other relief. Carbon Mountain filed an answer
to the counterclaim on May 13, 2013.

If the Garnishing Order is not set aside and/or if Carbon
Mountain is successful in its ligation efforts then the Companys financial
condition will further decline. (See  Item 8.A - Consolidated Financial
Statements and Other Financial Information  Litigation)

ITEM
4.            
INFORMATION ON THE COMPANY

4.A            
History and Development of the Company

Cardero was incorporated under the Company Act(British
Columbia) on December 31, 1985 under the name Halley Resources Ltd. The name
was subsequently changed to Rugby Resources Limited on September 6, 1991, to
Euro-Ad Systems Inc. on April 30, 1993, to Sun Devil Gold Corp. on July 3,
1997, and to Cardero Resource Corp. on May 18, 1999. Cardero was transitioned
under the Business Corporations Act(British Columbia) (BCBCA) on
January 13, 2005, and is now governed by that statute. On April 22, 2005,
Cardero filed a new Notice of Articles, reflecting the adoption by the
shareholders, on April 15, 2005, of a new form of Articles to govern the affairs
of the Company in substitution for the original articles adopted under the old
Company Act(B.C.) and reflecting the increased flexibility available to
companies under the BCBCA.

Carderos head office and principal business address is located
at Suite 2300  1177 West Hastings Street, Vancouver, British Columbia, Canada,
V6E 2K3. Carderos head office telephone number is (604) 408-7488 and Carderos
head office facsimile number is (604) 408-7499. Carderos registered and records
office is located at 550 Burrard Street, Suite 2300, P.O. Box 30, Bentall 5,
Vancouver, British Columbia, Canada, V6C 2B5. Carderos agent for service in the
United States is DL Services Inc., which is located at Columbia Center, 701
Fifth Avenue, Suite 6100, Seattle, Washington, 98104-7043.

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The Company is a mineral exploration company engaged in the
acquisition, exploration and development of mineral properties. The Company is
in the exploration stage as its properties have not yet reached commercial
production and none of its properties is beyond the exploration stage. All work
presently planned by the Company is directed at defining mineralization and
increasing understanding of the characteristics of, and economics of, that
mineralization. Other than at Carbon Creek, there are currently no identified
mineral resources, and there are no mineral reserves, on any of the Companys
mineral properties. The Company has no known reserves under SEC Industry
Guide 7 standards.

Over the past three financial years, the Company focused on the
acquisition and exploration of mineral properties, primarily in Canada, Ghana,
Argentina, Mexico and the United States. During the fiscal years ended October
31, 2011, 2012 and 2013, the Company entered into a number of option/joint
venture agreements to acquire interests in properties in these countries that it
believed to have the potential to host large gold, silver, copper-gold, iron
ore/titanium/vanadium and/or coal deposits. Many of these properties have since
been returned to the respective vendors or abandoned, and the associated costs
written off, in light of disappointing exploration results. In this regard,
during the 2011 fiscal year the Company wrote off $12,206,614 in acquisition and
exploration costs, during the 2012 fiscal year the Company wrote off $3,554,667
in acquisition and exploration costs and during the 2013 fiscal year the Company
wrote off $16,447,113 in acquisition and exploration costs (primarily in respect
of Sheini and the Longnose and Titac titanium projects in Minnesota). However,
the Company has retained the most strategic of its properties, being Carbon
Creek, and continues to look for either joint venture partners to carry out
additional exploration on its non-core properties or purchasers to acquire its
interest in such properties outright.

The Organullo property in Argentina was the subject of an
extensive work program in the fall of 2010, and in September 2011, the Company
entered into an option/joint venture agreement with Artha Resources Corporation
(Artha), whereby an Argentinean subsidiary of Artha could earn a 55% working
interest in the Organullo property, and thereafter form a joint venture with
Cardero Argentina. Artha subsequently experienced difficulty in raising the
necessary financing, and has officially notified the Company that it did not
incur the required expenditures and has consequently dropped its option to
acquire any interest in the property. The Company continues to seek other joint
venture partners for the Organullo project.

The Pirquitas property in Argentina is also optioned to Artha.
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 deadline for Artha to have incurred
expenditures 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 (6 months) to sell the
Pirquitas project and provides for 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 an initial 55% interest in
the project. On April 23, 2014, the Company, Cardero Argentina and another
public company executed an agreement providing for, among other things, the sale
by Cardero Argentina of its interest in the Pirquitas project, subject to a
number of conditions precedent. Closing, if it occurs at all, is expected prior
to May 31, 2014.

In keeping with bulk-commodity focus, in June, 2010, Cardero
acquired an initial interest of 49.9% in Coalhunter Mining Corporation
(Coalhunter). Pursuant to private placements completed on September 27, 2010
and December 21, 2010, Carderos interest in Coalhunter increased to 45.5% . On
June 1, 2011, Cardero acquired all of the issued and outstanding common shares
of Coalhunter and Coalhunter subsequently changed its name to Cardero Coal
Ltd.. Pursuant to an Arrangement Agreement dated April 18, 2011 between Cardero
and Coalhunter, on June 1, 2011 each Coalhunter shareholder (other than Cardero)
received 0.8 of a common share of Cardero for each common share of Coalhunter
held, resulting in the issuance of 23,397,002 Common Shares. A further 5,885,543
Common Shares were reserved for issuance upon the exercise of options held by former Coalhunter optionees, the
exercise of Coalhunter warrants and pursuant to Coalhunter property acquisition
agreements. The reason for the acquisition of Coalhunter was to acquire the
interest of Coalhunter in Carbon Creek. Since the time of the acquisition, the
Company has focused primarily on the further exploration and development of
Carbon Creek. In December, 2011, the Company exercised its option to enter into
a coal lease covering approximately 2,600 hectares of freehold coal comprising a
portion of Carbon Creek. At the same time, the Company also made the necessary
payment to enter into a joint venture with the Carbon Creek Partnership with
respect to Carbon Creek as required for the further development of Carbon Creek.
The Company completed a significant exploration program during 2011, which led
to the preparation of a preliminary economic assessment on a portion of Carbon
Creek. The Company also completed a major drilling program in 2012, which led to
the preparation of the PFS. In June 2012, Ridley Terminals Inc. (Ridley) and
Cardero Coal entered into an agreement for the shipment of metallurgical coal
from Carbon Creek. The agreement has a 15 year term from January 1, 2014 to
December 31, 2028, with provision to extend the term by three years to December
31, 2031. Contract volume is set at 500,000 tonnes per annum (tpa) through
2014, increasing to 900,000 tpa in 2015. Also in 2012, Cardero Coal had its
Project Description accepted by provincial and federal regulators, thereby
initiating the environmental assessment process for Carbon Creek. In April,
2013, the Company completed the acquisition of four additional coal licenses
forming part (3,513 hectares) of Carbon Creek.

26

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The Companys plan was to undertake a bankable feasibility
study (BFS) on Carbon Creek 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 in principle 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. Prior to determining to terminate the
activities related to the BFS, the Company incurred approximately $475,000 in
BFS-related activities.

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 all
of its operational staff involved with the Carbon Creek project, including all
employees of Cardero Coal, 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 would be required in order
to complete the BFS. See Item 4.D - Property, Plants and Equipment - Carbon
Creek Metallurgical Coal Deposit, British Columbia, Canada. The Company intends
to rely primarily on consultants to carry out any further work in connection
with Carbon Creek.

In November, 2011, Cardero completed a brokered private
placement (the 2011 Offering). A total of 8,029,750 units (Cardero Units)
were sold at a price of $0.95 per Cardero Unit for aggregate gross proceeds of
$7,628,262.50. Each Cardero Unit consisted of one Common Share and one-half of
one Common Share purchase warrant (each whole warrant, a Cardero Warrant).
Each Cardero Warrant was exercisable into one additional Common Share for a
period of 12 months from the closing of the Offering at an exercise price of
$1.25. If, at any time from 4 months after the closing of the Offering until the
expiry of the Cardero Warrants, the daily volume-weighted average trading price
of the Common Shares on the TSE exceeds $1.75 for at least 10 consecutive
trading days, the Company may, within 30 days, give an expiry acceleration
notice to the holders of Cardero Warrants and, if it does so, the Cardero
Warrants will, unless exercised, expire on the 30th day after the
expiry acceleration notice is given. All of the Cardero Warrants subsequently
expired on November 29, 2012, unexercised.

27

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In December, 2011, Cardero, through Cardero Ghana, entered into
three separate joint ventures (one for each prospecting license) with Emmaland
Resources Limited (Emmaland) to explore and, if warranted, develop, the iron
ore deposit(s) under lands subject to certain prospecting licenses granted to
Emmaland and 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 Project
(approximately 400 square kilometres in aggregate). Under the three joint
ventures, Cardero Ghana will have the right to earn a 100% working interest in
each license, 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. In order to earn its interest, Cardero will
fund all expenditures under the particular joint venture and make totalling USD
16.5 million to Emmaland. Following execution of the joint venture agreements,
in mid-2012 the Company carried out an initial exploration program in the
region. The Company is currently determining its future plans for Sheini, but
elected not to make a payment of USD 500,000 due December 31, 2012 in respect of
the joint venture agreement on the Sheini North prospecting license, or payments
of USD 1,900,000 in respect of the joint venture agreement on the Sheini South
prospecting license and USD 1,000,000 in respect of the joint venture agreement
on the Sheini Central prospecting license due December 31, 2013 and is
negotiating with Emmaland for extensions of such payments for an additional
year. Any such payments would be contingent on the Ghana Minerals Commission
extending the subject prospecting licenses for an additional year (such
extension has been applied for by Emmaland, but not yet granted). 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 in respect of any joint venture, 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 to enable 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 on Sheini.

In January, 2012, Cardero received repayment of the USD 8
million loan originally made to Kria Resources Inc. (Kria) (now a wholly owned
subsidiary of Trevali Mining Corporation (Trevali)). The Company, Kria and
Trevali agreed that the loan, plus interest of USD 645,260, was to be repaid as
follows: (i) Kria paid Cardero USD 5,000,000 in cash; and (ii) the balance of
USD 3,645,260 (equivalent to $3,734,569) was satisfied by Trevali issuing to
Cardero 4,149,521 units (Trevali Units), with each Trevali Unit being
comprised of one common share of Trevali (Trevali Common Share) and one-half
of one transferrable common share purchase warrant (a Trevali Warrant), at a
deemed price of $0.90 per Trevali Unit. Each whole Trevali Warrant will entitle
the holder thereof to purchase one Trevali Common Share (Trevali Warrant
Share) at a price of $1.10 per share until January 16, 2014. Cardero did not
exercise any of the warrants, as they were always out of the money, and they
have now expired.

On December 19, 2012, the Company closed the first tranche of
an offering of up to 22,500,000 Common Shares originally priced at $0.55 per
share and intended to raise gross proceeds of up to $12,375,000 (the
Offering). Due to market conditions, the Offering was subsequently re-priced
to $0.45 per Common Share, and the first tranche closing resulted in the Company
issuing 7,966,794 Common Shares to raise gross proceeds of $3,585,057.30. In
connection with this first tranche closing, the Company paid cash finders fees
of $51,067.50 and issued 114,000 finders warrants, with each finders warrant
exercisable to purchase one Common Share at a price of $0.50 until December 19,
2013 (all of which expired, unexercised). As a result of the Company having
arranged the flow-through private placement detailed below, the balance of the
Offering was reduced from 14,533,206 Common Shares to 5,825,000 Common Shares.

On December 28, 2012, the Company closed a non-brokered private
placement of flow-through Common Shares (the FT Offering). The Company issued
6,000,800 flow-through Common Shares at a price of $0.50 per share to raise
gross proceeds of $3,000,400. The Company paid aggregate finders fees of
$175,824.00 in cash plus 351,648 finders warrants. Each finders warrant is
exercisable to purchase one non-flow-through Common Share at $0.55 per share
until December 28, 2013. All of these warrants expired, unexercised.

On February 8, 2013, the Company closed the second and final
tranche of the Offering, issuing 2,472,222 Common Shares to raise gross proceeds
of $1,112,500. The Company paid cash finders fees of $55,626 and issued 123,610 finders warrants, with each finders warrant
exercisable to purchase one Common Share at a price of $0.50 until February 8,
2014.

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The net proceeds from the Offering were used to fund the
initial preparation work for the BFS, coal quality analyses and environmental
baseline work on Carbon Creek, as well as ongoing work programs and property
payments on Sheini and for general working capital.

On April 22, 2013, the Company completed a placement of senior
secured notes (Luxor Notes) in the aggregate principal amount of USD 5,500,000
with certain affiliates of Luxor Capital Group, LP. (Luxor Lenders). The Luxor
Notes had a one year term and were issued at a 9.1% discount to net the Company
USD 5,000,000 ($5,077,020) with interest accruing at the rate of 10% per annum,
payable semi-annually (13% after an event of default). The Luxor Notes were
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 Luxor Notes stipulated that they may be redeemed by the
Company at any time at par plus accrued interest, and that, should there be a
change of control of Cardero Coal while the Luxor Notes remained outstanding,
the holders of the Luxor Notes had the right to put the Luxor Notes to the
Company for an amount equal to 110% of par plus accrued interest. As a bonus for
subscribing for and purchasing the Luxor Notes, on April 25, 2013, the Luxor
Lenders were issued an aggregate of 2,000,000 Common Shares. A portion of the
net proceeds ($3,000,000) from the sale of the Notes was advanced by the Company
to Cardero Coal to fund the exercise of the option to acquire the shares of a
private company holding certain coal licenses forming part of the Carbon Creek
Coal project. See Item 4.D - Property, Plants and Equipment - Carbon Creek
Metallurgical Coal Deposit, British Columbia, Canada. On July 25, 2013, the
Company received a demand for payment of the Luxor Notes and related
indebtedness (the Indebtedness). The demand was in the amount of
$5,668,513.90, and payment was required to be on or before August 5, 2013. The
default upon which the demand was based was the alleged failure by Cardero to
pay legal costs in the amount of USD 48,136.91 incurred by the Luxor Lenders in
connection with the Luxor Notes.

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 the Indebtedness 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 (paid out by the Company on March 7, 2014), while USD
2,000,000 of the Kopple Notes are 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. The August Kopple Warrants expire on August 8, 2020,
and are exercisable at a price of $0.095 per share.

Pursuant to a facility agreement dated December 5, 2013 between
Cardero and the Kopple Lenders, 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 (and subsequently to March 14, 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
but, to date, have not done so. As additional consideration for the
establishment and funding of the Credit Line, the Company agreed to issue to the
Lenders transferrable warrants to purchase an aggregate of 38,417,398 Common
Shares (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, which the Company obtained at
its 2014 annual general meeting held on April 4, 2014. The Company anticipates
issuing the additional December Kopple Warrants shortly. The December Kopple
Warrants expire on December 5, 2020, and are exercisable at a price of $0.139.

29

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The Company also agreed to seek the consent of the shareholders
to reduce the exercise price of the December Kopple Warrants to $0.10, and to
the acquisition by the Kopple Lenders of a greater than 19.99% interest in the
Company through the exercise of the August Kopple Warrants, the December Kopple
Warrants, the exercise by Mr. Kopple of 3,600,000 incentive stock options held
by him in his role as a consultant to the Company, or any combination thereof.
The requisite consent of the shareholders to all of these matters was also
obtained by the Company at its 2014 annual general meeting held on April 4,
2014.

On June 25, 2013, the Company received notice from the NYSE MKT
Staff indicating that the Company was below certain of the NYSE MKTs continued
listing standards due to its financial condition becoming so impaired that it
appeared questionable, in the opinion of the NYSE MKT, as to whether the Company
would be able to continue operations and/or meet its obligations as they mature,
as set forth in the NYSE MKT Company Guide. The Company was afforded the
opportunity to submit a plan of compliance to the NYSE MKT and on July 12, 2013
presented its plan to the NYSE MKT. On August 9, 2013 the NYSE MKT notified the
Company that it accepted the Companys plan of compliance and granted the
Company an extension until November 29, 2013 to regain compliance with the
continued listing standards. Subsequent to October 31, 2013, the Company
received a Notice of Intent to File Delisting Application from the NYSE MKT. The
Notice stated that the Company remained not in compliance with certain of the
NYSE MKT continued listing standards as set out in Part 10 of the NYSE MKT
Company Guide and that the NYSE Regulation, Inc. intended to file a delisting
application for the Common Shares with the SEC. The NYSE MKT determined that the
Company has not made sufficient progress consistent with the plan filed by the
Company with the NYSE MKT addressing how it intended to regain compliance. The
Company had the right to appeal the NYSE MKTs determination to proceed with the
delisting. However, after careful consideration, the Company determined that the
significant expense of the appeal process and continued NYSE MKT listing was not
warranted as it was managements belief that it was not practicable for it to
maintain a plan of compliance that will satisfy the NYSE MKTs continued listing
requirements and that it was therefore in the best interests of the Company and
its shareholders that the Company accept the NYSE MKTs determination. The
Company was delisted from the NYSE MKT on November 26, 2013.

4.B            
Business Overview

General

The Company currently holds, or has rights to acquire,
interests (ranging from 75% to 100%) in several mineral properties (subject, in
certain cases, to net smelter return royalties or net profits interests payable
to the original property vendors) in Canada, Ghana, Argentina, and the United
States. The Company is in the process of evaluating such properties through
exploration programs or, in some cases, mineralogical and metallurgical studies,
materials processing tests and feasibility studies. In all cases, the objective
is to evaluate the potential of the subject property and to determine if
spending additional funds is warranted (in which case, an appropriate program to
advance the property to the next decision point will be formulated and,
depending upon available funds, implemented) or not (in which case the property
may be offered for option/joint venture or returned to the vendor or abandoned, as
applicable). At the present time, the Company is primarily interested in
properties that are prospective for coal and iron ore.

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The Company considers that Carbon Creek is its only material
mineral property at the present time. Information with respect to the Companys
material mineral property is set out under the heading Item 4.D - Property,
Plants and Equipment. The Company intends to seek to option/joint venture all
of its other mineral properties or, in some cases, abandon or surrender the
tenures to the applicable governmental agency and thereby terminate its interest
therein.

The Company is in the exploration stage and does not mine,
produce or sell any mineral products at this time, nor do any of its current
properties have any known or identified mineral resources or mineral reserves
(with the exception of Carbon Creek). The Company has no known reserves under
SEC Industry Guide 7 standards. Other than with respect to Carbon Creek, the
Company does not propose any method of production on any of its mineral
properties at this time. At Carbon Creek, the Company has determined the likely
methods of production (see Item 4.D  Property, Plants and Equipment  Carbon
Creek Metallurgical Coal Deposit, British Columbia, Canada), although it will
be required to carry out extensive additional work as part of any feasibility
study on Carbon Creek in order to confirm the presently envisioned production
methods are appropriate to employ should the property go into commercial
production.

All of the raw materials the Company requires to carry on its
business at the current stage of the development of its mineral properties are
readily available through normal supply or business contracting channels in
Canada, Ghana, Argentina and the United States. At the present time, such raw
materials are minimal and include such things as fuel, drilling muds and fluids,
wooden core boxes, sample bags and similar materials used in exploration
drilling and work programs. Should the Company proceed with the development of a
mine at Carbon Creek, the Company will require significant amounts of raw
materials, such as steel, concrete and other building materials, fuel,
explosives, reagents and similar operating materials and other raw materials
commonly used in the construction and operation of a coal mine. One of the
functions of any feasibility study that might be carried out on Carbon Creek
would be to determine the likely cost and availability of such materials, as
well as identify appropriate sources of supply. Although the Company believes
that it will be able to source all of such materials as required, until the
completion of a feasibility study it will not have identified the preferred
sources of supply. It is, however, likely that the prices of such materials,
wherever sourced, will fluctuate and could significantly increase in price over
the life of the proposed mine. One of the functions of a feasibility study is to
project the likely cost of any such materials and factor such costs, and any
anticipated increases, into the mine plan to determine the effect on the
economic result of the planned mining activities. At the present time it is not
possible to accurately predict such costs or the variations therein.

The mining business is subject to mineral price cycles. The
marketability of minerals and mineral concentrates is also affected by worldwide
economic cycles. For example, the downturn in the world economy which commenced
in 2008 and continues through today, significantly moderated the record high
prices, and temporarily reduced the upward price pressures, for many commodities
(including metallurgical coal). However, although the metallurgical coal market
is currently depressed, the Company does expect the market to recover somewhat
over the next 12-18 months. There have also been signs of apparent upward
momentum in several commodity prices, but it is difficult to assess if there are
the start of long-term trends, as there is great uncertainty as to the recovery,
or otherwise, of the world, and particularly the Chinese, economy. If the
economic recovery stalls and coal prices decline further as a consequence, a
continuing period of lower prices could significantly affect the economic
potential of Carbon Creek.

See Item 4.A  History and Development of the Company for
additional information regarding the nature of the Companys operations and its
principal activities for each of the last three financial years.

31

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Regulatory and Environmental Matters

British Columbia, Canada

Mineral Rights - Coal

The basic law governing the granting of coal tenures in British
Columbia is Coal Act, S.B.C. 2004, c 15. (Coal Act), which act governs
the acquisition and maintenance of coal tenures in respect of coal which, or
right to explore for, develop and produce such coal, is vested in or reserved to
the government of British Columbia (Government). The provisions of the Coal
Act do not apply to privately owned coal. The coal deposit at Carbon Creek
consists of a combination of public and private coal. Some of the more
significant features of the Coal Act are:

Acquisition of and Rights Under Coal Licenses

A person may apply to the Minister of Energy, Mines and Natural
Gas (Minister) for a coal license over coal lands (being lands in which the
coal, or the right to explore for, develop and produce coal are reserved to the
Government. Once the application is received, any deficiencies in the
application document are determined and corrected prior to the application being
accepted for recording. Accepted license applications are issued a tenure number
and applications are then plotted on the coal maps. A review of the land status
of the application area is then conducted to determine if the coal rights are
held by the Government. If the application is over Government owned coal, land
referrals are sent out to numerous agencies as well as any First Nations in the
application area. The applicant may be contacted if issues or amendments to the
application are required. Once information is received by the BC Mineral Titles
office (MTO), the Chief Gold Commissioner for BC (CGC) synthesizes this
information to determine whether to issue the coal licence. Documents are sent
to the applicant for signing. Issued licences are plotted on the coal maps and
the application tenure is removed. The license is valid for a one year term, and
is renewable on a year to year basis upon payment of the prescribed rent and the
filing of certain required information in respect of work carried out in the
prior year. If a licensee complies during the term of the licence with every
provision of the Coal Act and the licence, the Minister must extend the term of
the licence for further one year terms.

The holder of a coal license has the exclusive rights to
explore for and develop coal on the licence location and, with the approval of
the chief inspector appointed under the Mines Act, R.S.B.C. 1996, c 293 (Mines
Act) to mine and remove those quantities of coal the licensee may reasonably
require for testing, to a maximum of 100,000 tonnes. A coal license does not
grant the right to mine coal.

Acquisition of and Rights Under a Coal Lease

The holder of a coal license may apply for a coal lease, which
application requires the filing of a plan of the lease area, a plan of
operations showing the exploration, development and production to be carried out
on the lease area during the term of the lease, supported by the data,
feasibility studies and other information the Minister may require to evaluate
the application. If the Minister is satisfied that the application is made in
accordance with the applicable requirements, the Minister must issue a coal
lease, containing terms and conditions required by the Minister, to the
applicant. A coal lease is valid for the term requested by the applicant, not to
exceed 30 years from the date of its issue. If a lessee complies during the term
of the lease with every provision of the Coal Act and the lease, the Minister,
on application by the lessee in the prescribed manner, must extend the lease for
terms requested by the lessee, not to exceed 15 years from the date the
extension is issued. In order to maintain the coal lease, the holder is required
to pay a prescribed yearly rent and otherwise comply with the provisions of the
lease and the Coal Act.

The holder of a coal lease has the exclusive right, in
accordance with the Coal Act and the lease, to explore for, develop and produce
coal on the lease location.

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Transfers of Coal licenses and Leases

Holders of coal licenses and leases are permitted to freely
transfer, in writing, any interest in a license or lease, except that any
disposition that has the effect of dividing the interest in the licence or lease
on the basis of the stratification, physical position or characteristics of the
coal under the location is void. Dispositions must be recorded with the Chief
Gold Commissioner and a recording fee paid in order to be valid as against third
parties.

Surface Rights

Under the Coal Act, holders of licenses and leases have certain
rights to use the surface of the lands subject to such tenures.

The holder of a coal license may (a) enter, occupy and use the
surface area of the location for the purpose of exploring for and developing
coal on the location, (b) subject to entering into an agreement in the form of a
free use permit under the Forest Act, R.S.B.C. 1996, c 157 (Forest Act) or a
licence to cut under the Forest Act, to use and remove timber that, at the time
the holder of the licence enters into the agreement, is on the location, and (c)
to the non-exclusive right to use sand, gravel and rock from the location for
use on the location for a construction purpose approved under the Mines Act,
without the necessity of obtaining a licence, lease, permit or other
authorization under the Land Act, R.S.B.C. 1996, c 245.

The holder of a coal lease may, if the surface area of a lease
location is owned by the Government and is used or occupied by the lessee, the
lessee is entitled (a) to enter, occupy and use the surface area of the location
to produce coal, (b) subject to entering into an agreement in the form of a free
use permit under the Forest Act or a licence to cut under the Forest Act, to use
and remove timber that, at the time the holder of the lease enters into the
agreement, is on the location, and (c) to the non-exclusive right to use sand,
gravel and rock from the location for use on the location for a construction
purpose approved under the Mines Act, without the necessity of obtaining a
licence, lease, permit or other authorization under the Land Act.

The right of the holder of a coal license or coal lease to use
the surface of a location where the surface is privately owned is subject to
such holder giving advance notice to the owner(s) of such land and paying
compensation. Such compensation is either to be settled by agreement or through
arbitration through the Surface Rights Board under the Petroleum and Natural Gas
Act, R.S.B.C. 1996, c 361.

Environmental and Permitting

Exploration

In order to carry out exploration activities on its coal
tenures, the holder of a coal license is required to obtain a permit under the
Mines Act, which is obtained by submitting a notice of Work under the Mines
Act outlining the types of activities planned, a description of the proposed
work program, information with respect to emergency procedures, known cultural
heritage resources, First Nations and public consultation, water rights/use,
timber to be cut/used and a proposed reclamation plan for the disturbance to be
created. Following review by the Government, including any necessary
consultations, a permit may be issued to carry out the planned exploration
program. In connection with the issuance of such permit, the holder of the coal
license will be required to post a bond based upon the area to be disturbed and
the cost of the applicable reclamation required.

Production

At such time as the holder of a coal tenure wishes to place the
project into production, it will be necessary to obtain permits under a number
of British Columbia provincial and Canadian Federal laws.

33

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In British Columbia, the environmental assessment (EA)
process provides a mechanism for reviewing major projects to assess their
potential impacts. The BC Environmental Assessment Office (EAO) manages the
assessment of proposed major projects in British Columbia as required by the
Environmental Assessment Act, S.B.C. 2002 c 43 (Act). The assessment process
examines major projects for potentially adverse environmental, economic, social,
heritage and health effects that may occur during the life cycle of these
projects. Coal mines with a capacity of in excess of 250,000 tonnes/year are
considered as major projects and are required to go through the EA process in
order to obtain their operating permit.

There are three stages in an EA - pre-application, application
review and the decision stage. After the application review stage, the Minister
may issue an environmental assessment certificate, allowing the proposed project
to proceed.

The purpose of the pre-application stage is to ensure that,
when an application for an environmental assessment certificate is reviewed, it
contains the necessary information to allow the EAO to undertake its assessment
and make recommendations to the Ministers making the decision. The
pre-application phase includes the following key steps:

- review of project description to determine whether the project is
  reviewable;
- issuance of a section 10 order confirming that a proposed project is
  reviewable;
- issuance of a section 11 order specifying the scope, procedures, and
  methods by which a review must be conducted;
- establishment of a working group composed of representatives of First
  Nations and various government agencies;
- preparation of draft terms of reference that specify the matters that must
  be studied and information that must be included in an application;
- review and comment on the draft terms of reference by the working group,
  First Nations and the public. This stage typically includes an open house
  where the terms of reference (and the project generally) are discussed;
- finalization of the Application Information Requirements (AIR);
- Completion by the proponent of studies and information gathering as
  specified in the terms of reference;
- submission of the application by the proponent; and
- evaluation by the EAO within 30 days to determine whether the application
  provides information on all matters required by the application information
  requirements (including proposed commitments by the proponent to address any
  potential adverse effects).

Other than the 30-day evaluation period, neither the Act nor
the regulations impose time limits on the EAO during the pre-application phase.
Cardero Coal is presently in the pre-application stage with respect to Carbon
Creek, although it has ceased work on its application at the present time and
there can be no certainty that it will be able to recommence the process and
finalize its AIR.

Following the preparation of the AIR, and the acceptance of the
AIR by the EAO, once an application is accepted, EAO has a maximum of 180 days
to complete its review. This time limit begins when EAO has notified the
proponent that the application has been accepted for review and the proponent
has provided all the copies of the application that it has requested. EAO will
also require the proponent to distribute copies to other review participants,
including the working group and First Nations. The public also has a second
opportunity for comment.

The EAO will begin drafting the assessment report during the
180 day review period. The report documents the findings of the assessment,
including the extent to which concerns have been addressed and whether any
issues remain outstanding. EAO shares its draft assessment report with the
proponent, the working group and with First Nations, and seeks input. EAO
typically provides approximately three weeks for such comment. In addition to
the assessment report, EAO provides ministers with:

34

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- a recommendations from the Executive Director (with reasons) as to whether
  to issue an environmental assessment certificate (EAC); and
- a draft EAC (in the event the Ministers chose to sign and issue such).

The draft EAC will have a schedule that sets out the details
according to which the project must be designed and constructed, along with
another schedule that sets out all of the commitments the proponent has made to
address concerns raised through the EA process. It is not uncommon for an EAC to
have over 100 commitments. All of the requirements of these schedules form
conditions of the certificate and are legally binding on the proponent if the
certificate is issued by Ministers. The draft EAC also contains periodic
reporting requirements, and specifies a deadline by which the proponent must
substantially start the project. That deadline is typically 5 years from the
date the Ministers issue an EAC.

Upon completing and assembling the materials referenced above,
the Executive Director submits them to two ministers for decision - the Minister
of Environment and another minister responsible for that category of reviewable
project. For example, the decision on a proposed coal mine would be made by the
Minister of Environment and the Minister of Energy, Mines and Petroleum
Resources.

After the Ministers receive this package, they have 45 days in
which to make a decision. They must consider the assessment report and the
documents that accompany it, and may also consider any other matters they
believe are relevant to the public interest when they make their decision. A key
factor ministers will consider is whether the Province has satisfied its legal
duty to consult with and to the extent appropriate, accommodate First Nations.

When making the decision, the Minsters have three choices:

|1. | issue an EAC with any conditions they consider
      necessary;
|-- | ---------------------------------------------------------------
|2. | refuse to issue an EAC; or                                     
|3. | require further study or
assessment.                           

Once the Ministers make a decision, EAO notifies the proponent,
government agencies (including provincial permitting agencies) and First Nations
of the decision. EAO, at this point, posts the assessment report, the executive
directors reasons and recommendations, the information bulletin and the EAC, if
issued. Statutory permit approval processes are normally more specific than the
EA and may require more detailed design information, e.g., tailing storage
facilities.

In addition to obtaining the EAC, it is also necessary for a
proponent who wishes to place a coal mine into production to obtain a number of
other permits, including permits under the Mines Act, Water Act, Forest Act,
Land Act, Environmental Management Act and others. The process to obtain the
necessary permits under such acts may proceed concurrently with the EA. However,
no statutory permit approvals may be issued before the EAC is issued.

In addition to the EA process described above, projects that
touch on areas in the jurisdiction of the Canadian federal government, such as
fisheries and navigable waters. Federal government review through the Canadian
Environmental Assessment Agency (Agency) under the Canadian Environmental
Assessment Act, 2012, SC 2012, c 19, s 52 (CEAA) is independent of the BC
provincial review as the federal agencies, deemed responsible authorities
(RA), will ascertain if there are federal triggers invoked by the proposed
project, thereby resulting in an applicable level of federal review (e.g., none
 screening level assessment  comprehensive review). Concurrent reviews
required under the BCEAA and CEAA are carried out cooperatively under the
Canada-British Columbia Agreement for Environmental Assessment Cooperation in
order to expedite such reviews. Pursuant to the CEAA, under appropriate
circumstances, the Federal Minister of the Environment (MOE) must allow a
provincial process to substitute for a federal environmental assessment to be
conducted by the Agency, but not federal decision-making, if requested to do so
by a province and if the MOE is of the opinion that the provincial
process is an appropriate substitute for an assessment under CEAA and that
conditions contained in CEAA regarding factors to be considered, public
participation and the submission of an environmental assessment report will all
be fulfilled by the provincial process. The MOE may establish additional
conditions as a prerequisite to his approval of a substituted process. The MOE
may also approve substitution with other jurisdictions, such as an Aboriginal
land claim body.

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Under the equivalency provisions of CEAA, where a provincial
process meets all of the conditions for the substitution of a process, the MOE
may recommend to the Governor in Council that a designated project be exempted
from the application of CEAA.

It has previously been determined that Carbon Creek is subject
to an environmental assessment by both the Federal and BC Provincial
authorities. On March 6, 2013, the EAO submitted a request to the Federal
government to conduct a substituted environmental assessment on Carbon Creek.
Subsequent to a public review period, the request was approved by the Federal
Environment Minister on April 15, 2013.

4.C            
Organizational Structure

The following corporate chart sets forth, as at April 30, 2014,
all of Carderos subsidiaries and their respective jurisdictions of
incorporation. Each of these subsidiaries is wholly owned, directly or
indirectly, by Cardero:



Throughout this annual report references made to the Company
refer to Cardero and its consolidated subsidiaries, Cardero Coal, Cardero Iron,
Cardero Argentina, Cardero Peru, Cardero Chile, CCDL, Cardero Iron USA, Cardero
Management USA, Cardero Iron BVI, Cardero Hierro BVI, Cardero Hierro Peru,
Cardero Iron Ghana, Cardero Ghana, CTL, CMTL, CLL and CIPC, while reference to
Cardero refers to the Canadian parent company only.

36

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4.D            
Property, Plants and Equipment

Carbon Creek Metallurgical Coal Deposit, British Columbia,
Canada

Property Description and Location

The Carbon Creek property lies approximately 60 kilometres (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 (Figure 1).



Figure 1: Carbon Creek  Location and Regional
Infrastructure Map

Tenure and Joint Venture

The Carbon Creek property is in the Peace River Coalfield and
consists of twelve Coal License Applications (and any coal licenses issued
pursuant to such applications) and four issued coal licenses with respect to
coal owned by the Province of British Columbia (to which the Coal Act applies)
and ten Crown Granted District Lots (CGDL) on which the coal is held in
private ownership and to which the Coal Act does not apply, comprising a
contiguous tenure parcel of 17,200 hectares (Figure 2).

Ten of the Coal License Applications have been submitted by P.
Burns Resources Ltd. (Burns) of Calgary, Alberta and, upon the issuance of any
coal licenses thereunder, such licenses are to be transferred to the Carbon
Creek Partnership (CCP), an Alberta partnership. Two of the Coal License
Applications are held by Cardero Coal.

37

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The CGDLs, totalling approximately 2,600ha, are controlled by
Peace River Partnership (PRP), an Alberta partnership. Cardero Coal holds a
coal lease over the freehold (private) coal resources under the CGDL from PRP
(Coal Lease).

Under the Coal Lease, Cardero Coal will pay a 5% freight on
rail royalty on all coal sold or $2 per metric tonne of coal sold, whichever is
greater, and 20% on sales for any coal substances sold or consumed on the CGDL.
On May 1, 2013 the Coal Lease was amended to include an Advance Royalty payment
to be paid until the commencement of the payment of the Royalty. The Advance
Royalty is non-refundable and is to be deducted from the amount required to be
paid in respect of the Royalty due. The Advance Royalty amounts and due dates
are as follows:

Date Due
    Amount
      ($)June 2, 2013
    500,000June 2, 2014
    2,000,000June 2, 2015
    3,000,000June 2, 2016 in each year thereafter
    3,500,000


All or any portion of the Advanced Royalty due on June 2, 2013
can be extended to June 2, 2014 by giving proper notice and paying interest at a
rate of 6% per annum on amounts outstanding, which Cardero Coal has done. All or
any portion of the Advanced Royalty due on June 2, 2014 can be extended to June
2, 2015 by giving proper notice and paying interest at a rate of 6% per annum on
amounts outstanding. The Coal Lease provides that Cardero Coal is required to
commence commercial production before June 15, 2017, and if it fails to do so,
PRP may terminate the Coal Lease. After June 15, 2017, PRP may also terminate
the Coal Lease if Cardero Coal fails to achieve annual production of at least
500,000 tonnes of coal for a period of three years.

A contiguous coal tenure application under the Coal Act
submitted by Alan A Johnson was processed by the province of BC and converted
into four coal licenses (418174, 418175, 418176, and 418177) on June 14, 2012.
Cardero Coal had an exclusive option to purchase these licenses (plus any
additional coal licenses issued in respect of certain other coal license
applications held by Mr. Johnson) on or before January 14, 2013 for $5 million
plus 400,000 Common Shares. In January, 2013, the Company entered into an
agreement with Mr. Johnson, whereby the four licenses were transferred to a new
company owned by Mr. Johnson (CoalCo) and the Company was granted the option
to acquire all of the shares of CoalCo for the same consideration. In addition,
such agreement extended the previous exercise deadline of the option for a
period of up to an additional three months and modified the required option
exercise payment structure. Under the new terms, Cardero Coal paid a
non-refundable deposit of $1 million on January 14, 2013, with the $4 million
balance and 400,000 Common Shares due upon exercise of the option. The Company
was permitted to extend the deadline for the exercise of the option for up to
three additional months (to April 14, 2013) upon payment of an extension fee of
$20,000 for each month of the extension ($60,000 total) which it did. The
Company subsequently further extended the deadline for the exercise of the
option to April 22, 2013 by the payment of a further $1 million non-refundable
deposit, and exercised the option on April 22, 2013 by paying the $3 million
balance owing and issuing the 400,000 Common Shares. Immediately following the
acquisition of CoalCo, it was wound up into Cardero Coal and the subject
licenses are now held by Cardero Coal.

Cardero Coal has entered into a joint venture agreement with
CCP, in which Cardero Coal will have a 75% interest and CCP will have a 25%
interest. Pursuant to the joint venture agreement, each joint venture partner is
contributing its resource in the Carbon Creek deposit. The joint venture, known
as the Carbon Creek Joint Venture, will control and operate the Carbon Creek
property described above. The joint venture agreement provides that the CCP
interest is a carried interest which requires Cardero Coal to fund the 100% of
the exploration, development, construction and operation of the mine. However,
CCP will not receive any payments in respect of its 25% interest in the joint
venture until Cardero Coal has recovered 100% of its investment including all
development monies, exploration expenditures, and capital expenditures as well
as the cost of the Johnson coal licences. Following Cardero Coal recovering its
investment, CCP is entitled to 25% of the net proceeds of the Carbon Creek Joint Venture.
Cardero Coal is the manager of the Carbon Creek Joint Venture.

38

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Cardero acquired its initial interest in Cardero Coal through a
series of private placements in 2010/11 and completed the acquisition of the
balance of the outstanding shares of Cardero Coal through a plan of arrangement
that was completed on June 1, 2011.

Accessibility, Climate, Local Resources, Infrastructure and
Physiography

Carbon Creek is accessible by improved forest service roads
that connect with British Columbia Highway 29 between the towns of Chetwynd and
Hudsons Hope.

The nearest towns to the property are Chetwynd (population
2,500) located 60km southeast of the property and Hudsons Hope (population
1,200) located 40km east of the property. The nearest city is Fort St. John
(population 18,300) located 110km east of property and is connected to the towns
of Chetwynd and Hudsons Hope by Highway 29. 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 area has a continental highland climate featuring short,
warm summers averaging 15.3°C (Chetwynd, July) and long, cold winters averaging
-10.3°C (Chetwynd, January). Nearby Chetwynd averages 318 millimeters (mm) of
rain and 1.69m of snow per year. Year-round mining operations are common in the
region and winter conditions do not preclude surface or underground mining
activities.

The property is located in the Inner Foothills of the Canadian
Rocky Mountains. The regional topography is a belt of hills and low mountains.
The highest elevation on the property is slightly over 1,600 meters (m) above
sea level.

A watercourse called Carbon Creek flows from south to north
through the property and enters the Williston Lake located in the north of the
property.

History

During the period 1908 to 1951 coal exploration and evaluation
at Carbon Creek was limited to surface mapping, trenching, and sampling along
creek beds. From 1970 to 1981 Trend Exploration Limited conducted an aerial
mapping survey and subsequently Utah International (now BHP Billiton) and its
subsidiary, Utah Mines Ltd. (Utah) completed comprehensive campaigns of
exploration, including surface mapping, drilling, trenching, and bulk sampling.

There was a hiatus in coal exploration from the early 1980s to
2010 when Cardero Coal completed an eight-hole validation drilling program. The
positive results permitted the Utah drilling data to be used in the completion
of a resource estimate. Starting in August 2011 Cardero Coal initiated an
in-fill drilling, surface mapping and bulk sampling program.

39

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Figure 2: Carbon Creek Tenures

40

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Geologic Setting and Mineralization

Carbon Creek lies within the Inner Foothills structural
province of western Canada and contains medium volatile bituminous coals of the
Gething Formation. The Foothills belt is characterized by folded and faulted
Mesozoic sediments that are in transition between the relatively gently-dipping,
non-deformed formations of the Alberta Plateau to the east and the
highly-deformed Rocky Mountain Trend to the west. The subsequent structural
deformation resulted in increased pressures and heat flows that have imparted
metallurgical properties to the coal seams.

The Gething Formation consists of dark grey mudstone,
siltstone, very-fine to coarse-grained sandstone, carbonaceous mudstone, silty
and sandy mudstone, coaly plant debris, minor bentonite, black shale, occasional
minor tuffs in the upper part, minor conglomerates and abundant but relatively
thin coal seams.

Structural interpretations of Carbon Creek portray a
doubly-plunging syncline lying between two anticlinal belts that straddle the
western and eastern boundaries of the property. The synclinal axis roughly
parallels the course of the Carbon Creek watercourse and plunges gently (less
than 5°) to the south-southeast through the main project area. Dips in the
central portion of the property are nearly flat, ranging from 0o to 15o,
increasing to up to 30o locally along the synclinal flanks in the east and west
portions of the property.

For coal deposits, mineralization refers to coal development
and coal seam stratigraphy. The coals occurring within Carbon Creek are thought
to occur in the upper to middle sections of the Gething Formation. The coal
deposition found on the property is typical of the Gething Formation, consisting
of abundant coal seams, some showing favourable metallurgical properties.
Although there are numerous seams throughout the property, 27 identified coal
seams are developed sufficiently to be considered of economic significance. The
average thickness (m) and undiluted raw coal quality for the 27 coal seams is
outlined in Table 1.1.

TABLE 1.1 AVERAGE THICKNESS AND UNDILUTED RAW COAL QUALITY
OVER RESOURCE AREA

Seam
    Average
      Thickness (m)
    
    Coal Quality (Air Dried
      Basis)Minimum
      Thickness (m)
    Maximum
      Thickness (m)
    Moisture
      (%)
    Ash (%)
    Sulphur
      (%)
    Volatile
      Matter (%)
    Fixed Carbon
      %
    Calorific
      Value Btu/lb
    FSI63
    1.72
    0.80
    2.26
    2.4
    11.2
    0.61
    34.4
    52.1
    12,670
    360
    0.92
    0.42
    1.50
    1.9
    11.7
    0.73
    31.1
    55.2
    12,710
    11⁄259
    0.88
    0.22
    2.01
    2.3
    14.6
    0.87
    31.9
    52.8
    12,070
    258
    1.01
    0.47
    1.80
    2.4
    15.8
    0.82
    28.9
    52.6
    11,890
    257
    0.53
    0.14
    1.71
    1.9
    19.0
    1.07
    31.0
    47.9
    11,520
    21⁄256
    0.70
    0.20
    1.60
    1.8
    17.6
    1.08
    29.3
    51.0
    11,940
    31⁄255
    1.55
    0.60
    2.50
    2.4
    15.2
    0.66
    28.3
    53.8
    12,130
    254
    1.39
    0.60
    2.22
    2.3
    5.4
    0.79
    27.7
    66.8
    13,720
    11⁄253
    0.71
    0.26
    0.92
    1.5
    20.8
    1.14
    30.4
    46.8
    10,970
    252
    1.39
    0.05
    2.44
    1.8
    15.6
    1.59
    28.6
    54.8
    12,160
    21⁄251A
    1.32
    0.06
    2.87
    2.3
    6.9
    0.75
    27.3
    63.1
    13,500
    11⁄251
    1.44
    0.45
    3.50
    2.2
    10.5
    0.69
    26.7
    60.5
    12,870
    148
    0.49
    0.06
    2.29
    1.9
    18.1
    1.24
    26.9
    57.1
    11,820
    31⁄247
    1.21
    0.03
    3.72
    2.3
    14.8
    0.88
    24.5
    58.8
    12,280
    11⁄246
    1.56
    0.14
    3.20
    2.1
    8.2
    0.80
    26.4
    63.0
    13,380
    242
    0.66
    0.06
    2.13
    1.8
    12.8
    0.93
    28.0
    59.3
    12,520
    440
    1.14
    0.22
    3.02
    1.7
    14.3
    1.12
    27.7
    55.8
    12,500
    41⁄231
    1.59
    0.21
    4.34
    1.3
    22.4
    1.35
    26.2
    5065
    11,300
    6


41

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Seam
    Average
      Thickness (m)
    
    Coal Quality (Air Dried
      Basis)Minimum
      Thickness (m)
    Maximum
      Thickness (m)
    Moisture
      (%)
    Ash (%)
    Sulphur
      (%)
    Volatile
      Matter (%)
    Fixed Carbon
      %
    Calorific
      Value Btu/lb
    FSI29
    0.87
    0.12
    2.32
    1.3
    16.3
    1.00
    25.8
    61.9
    12,390
    41⁄228
    0.88
    0.19
    2.48
    1.2
    17.8
    0.88
    26.6
    57.9
    12,010
    41⁄227
    1.40
    0.36
    3.31
    1.2
    14.1
    0.64
    26.5
    61.3
    12,730
    31⁄223
    0.87
    0.17
    2.22
    1.5
    26.4
    0.65
    21.1
    50.4
    10,770
    31⁄222
    1.00
    0.09
    4.70
    1.3
    8.9
    0.79
    25.0
    66.6
    13,560
    321
    0.89
    0.26
    2.41
    1.0
    18.9
    0.71
    22.3
    60.5
    12,080
    31⁄218
    0.81
    0.18
    2.38
    0.8
    12.2
    0.74
    24.4
    67.6
    13,290
    515
    1.96
    0.18
    3.52
    0.9
    11.7
    0.52
    22.4
    66.4
    13,400
    31⁄214
    1.61
    0.16
    4.20
    0.8
    15.1
    0.58
    21.1
    65.0
    12,930
    3Avg
    1.13
    -
    -
    1.7
    14.3
    0.92
    26.7
    58.5
    12,480
    3


Values shown represent coal without out-of-seam dilution
(OSD). Run-of-Mine (ROM) coal, i.e. mixed with OSD, can be beneficiated
using size specific density and froth flotation separating processes to improve
coal quality. Coking properties such as Free Swelling Index (FSI) and dilation
are typically improved as well through beneficiation.

Exploration and Drilling

The periods and types of coal exploration undertaken on the
property are summarised in Table 1.2. The coal exploration methods can be
separated into four types: regional mapping and field sampling, aerial surveys,
coring and open-hole (rotary) drilling, and bulk sampling. Types by era are
summarized below.

TABLE 1.2 EXPLORATION METHODS

Year
    Company/ Individual
    Drill Holes
    Exploration Activity1908 -1945
    Various
    
    Surface mapping, and sampling,
      trenching1970
    Trend Exploration
    
    Aerial reconnaissance mapping1971 - 1981
    Utah
    301
    Surface mapping, drilling, 2D
      seismic program, bulk sampling2010
    Cardero Coal
    8
    Validation drilling (coring)2011
    Cardero Coal
    62
    Surface mapping and drilling2011
    Cardero Coal
    53
    Large diameter (6 inch) bulk
      sample drilling, 11 seams intersected


Most drilling was vertically oriented, targeting coal seams
that were usually dipping between 5°and 20°from
horizontal. A 2D seismic program completed in 1975 focused on the mapping of
surficial glacial till nearby Nine Mile Creek. Approximately half of the holes
drilled on the property were sampled core holes. The rotary holes were completed
for the purposes of coal seam correlations and mapping depth of surface
weathering or glacial till. The field recording of drill hole depth intervals
were later reconciled with the aid of geophysical logs. Eleven angled drill
holes were completed by Cardero Coal in 2011 for the purposes of obtaining
oriented core samples for detailed geotechnical logging and analyses. Bulk
sampling was completed in 1976 by Utah from surface audits and by Cardero Coal
in 2011 from vertically oriented large diameter (LD) drill cores.

42

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Cardero Coal conducted a multi-rig exploration program during
2012, targeted at expanding the estimated measured plus indicated resource base
and further defining potentially mineable areas within the previously defined
resource areas.

Sample Preparation, Analysis and Security

Field sampling, handling and transport of drill core samples by
Cardero Coal were observed to be in accordance with industry best practice. Utah
used similar methods in their drill core sampling program in the 1970s and
1980s. The Utah samples predominantly went to coal laboratories in United States
whereas the Cardero Coal samples were sent to certified coal laboratories in
both the United States and Canada.

The drill core samples were subject to a standard suite of raw
proximate coal analyses that included FSI. The bulk samples were subject to more
detailed analyses specifically targeted for the evaluation of the coals
washability characteristics and metallurgical properties. Coal seams which were
believed to have sufficient bulk sample analyses were subjected to detailed
washability and metallurgical characterization. Bulk sample analyses for
remaining seams are either currently outstanding or are considered low tonnage
seams. Metallurgical potential for these seams is limited to evaluation of raw
proximate coal quality and FSI.

Mineral Processing and Metallurgical Testing

Projected Coal Handling and
Preparation Plant Design

Work to date by the Company suggests that a likely scenario for
Carbon Creek is that ROM coal will be conveyed or trucked to the central coal
handling and coal preparation plant (CHPP & CPP), depending on the mining
location of each particular seam. The ROM coal would be stored in multiple
dome-covered stockpiles with aggregate capacity of about 350,000t with live
reclaim systems. The reclaimed ROM coal would then be fed to the coal
preparation plant and screened. Oversize ROM would be fed to a rotary breaker
rotary breaker which would destone and size the coal.

The CPP would be single-module operation rated to accept a
nominal 1200 tonnes per hour (tph) of raw feed. The CPP would feature parallel,
size-specific processes. The plant is intended to be robust in design with ease
of maintenance as well as purpose built for northern British Columbia winters.
Target coal throughput is projected to be 7.2Mtpa at a 68% operating efficiency
(yield).

A heavy media bath circuit would then wash the 150mm x 10mm
stream, followed with a clean coal crusher, after wetting, to reduce the
top size to pass 50mm or other market specification. This approach is suggested
to avoid the need for a thermal dryer.

Parallel to the heavy media bath would be three additional
processes. A large-diameter heavy media cyclone would wash the 10mm x 1mm stream
along with reflux classifiers for the 1mm x 0.25mm and two-stage froth flotation
for the minus 0.25mm streams. The latter would employ column flotation for the
minus 45 micron range of material; this could be bypassed when processing lower
value thermal coals.

Each sub-product stream would employ high performance
mechanical dewatering centrifuges specific to each particle size group. Pressure
filtration would be used on the minus 45 micron material. Based upon the
available washability data, total product moisture values for each seam are
projected to be below 8% by weight.

The washed coal would then be conveyed to a series of three
domed stockpiles depending on product type. Emergency overflow stockpiling
systems would also be available. Product coal would then be conveyed to a barge
loader on Williston Lake.

43

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Sampling and Testing

An exploration program was conducted by Cardero Coal. This
program included a select number of large diameter (150mm) cores for the purpose
of obtaining representative washability and carbonization data. Only one
drill-core per seam was obtained.

A washability study testing protocol was developed to ensure
consistent laboratory reporting results. The washability testing program
featured a comprehensive attrition regimen prior to conducting any float-sink
and flotation testing. Such pretreatment procedures help ensure consistency as
well as improving washability prediction results. At the time of the washibility
study Seams 14 and 15 were being drilled but no laboratory results were
available.

Seam Characterization

Samples of each of the major seams collected in the bulk LD
core drilling program were assembled as simulated seam product (SSP). These
SSPs are small bulk clean coal products resulting from analyses of the
washability results. Each seam SSP was analyzed for caking and plasticity,
petrographics, and in some cases, carbonization tests. P rimary data for Seams
14 and 15 are not yet available; reporting of these data was derived from
secondary sources.

The mined coal from Carbon Creek will likely fall into two main
logical groups: medium volatile (mid-vol) and high volatile (high-vol)
bituminous coals.

Most of the mid-vol coals seams, i.e. the lower seams 14, 15,
27, 31 and 40, will be marketed as hard coking coals (HCC). While Seam 40 is
currently included in this group, the most recent analytical, petrographic and
carbonization results indicate this may be a semi-soft coking coal. However,
previous Utah washability data from 1976 indicates that Seam 40 is a black and
white coal with a potential product ash of 6% (ad) and is dissimilar from the
current primary data.

Projected Product Quality

The target product ash contents were determined by maintaining
heavy media densities within practical and industry norms. Most of the coal
seams, with the exception of Seam 40, display excellent separation
characteristics.

Table 1.3 lists the projected product qualities for the hard
coking coal seams.

TABLE 1.3 HARD COKING COAL TARGET PRODUCT QUALITY

Seam
    Inherent Moisture
    SurfaceMoisture
    TotalMoisture
    Ash(ar)
    Ash(ad)
    Sulphur (ad)
    FSI14
    1.0
    6.8
    7.7
    5.5
    6.0
    0.72
    6-715
    1.0
    5.9
    6.8
    4.6
    5.0
    0.84
    6-727
    0.7
    5.7
    6.4
    5.6
    6.0
    0.77
    6-731
    1.1
    5.9
    7.1
    5.6
    6.0
    0.67
    6-740
    0.8
    6.4
    7.1
    7.9
    8.5
    1.24
    6-7


Table 1.4 lists the projected product qualities for the
candidate PCI, semi-soft coking and/or thermal coal seams.

44

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TABLE 1.4 CANDIDATE PCI, SEMI-SOFT COKING & THERMAL COAL
TARGET PRODUCT QUALITIES

Seam
    Inherent
      Moisture
    Surface
      **Moisture**
    Total
      **Moisture**
    Ash (ar)
    Ash (ad)
    Sulphur (ad)
    FSI46
    1.3
    5.6
    6.8
    2.3
    2.5
    0.81
    347
    1.0
    6.0
    6.9
    4.7
    5.0
    1.18
    21⁄251
    1.5
    5.3
    6.7
    5.6
    6.0
    0.81
    351a
    1.0
    4.9
    5.9
    2.8
    3.0
    0.71
    31⁄252
    1.3
    5.0
    6.2
    5.6
    6.0
    1.28
    31⁄254
    0.9
    4.7
    5.6
    2.8
    3.0
    0.81
    21⁄255
    1.2
    4.1
    5.3
    4.3
    4.5
    0.68
    21⁄258a
    1.1
    5.7
    6.7
    4.7
    5.0
    0.91
    31⁄258b
    1.5
    4.7
    6.1
    5.2
    5.5
    0.83
    3


Mineral Resource Estimate  Coal Resources

A resource estimation for Carbon Creek was completed in
accordance with the procedures and criteria of Geological Survey of Canada (GSC)
Paper 88-21 as required by NI 43-101. The coal resources were reported from a
MineSight software generated 3D block model. Numeric seam identifiers, ore
volumes and resource limiting criteria were coded into the 3D block model from
gridded surface files representing the extent of the surface and underground
coal resource in accordance with GSC Paper 88-21 guidelines and within the
Cardero Coal license application areas. The mineral resource estimates for
surface and underground moderate geology-type coal reported from the current
Carbon Creek geologic model are outlined in Table 1.7. The resource statement is
current as of September 20, 2012.

Carbon Creek has an estimated 468Mt of in-place coal resources
in the measured and indicated categories plus 232Mt in the inferred category.
Table 1.5 breaks these resources into surface and underground tonnes.

Cautionary note to U.S. investors concerning estimates of
inferred and indicated resources. This section uses the terms inferred
resources and indicated resources. The Company advises U.S. investors that
these terms are not recognized by the SEC. The estimation of measured resources
and indicated resources involves greater uncertainty as to their existence and
economic feasibility than the estimation of proven and probable reserves. U.S.
investors are cautioned not to assume that mineral resources in these categories
will be converted into reserves. The estimation of inferred resources involves
far greater uncertainty as to their existence and economic viability than the
estimation of other categories of resources. U.S. investors are cautioned not to
assume that estimates of inferred resources exist, are economically minable, or
will be upgraded into measured or indicated resources.

TABLE 1.5 CLASSIFICATION OF RESOURCE  CARBON CREEK PROPERTY(AS AT SEPTEMBER 20, 2012

Deposit Type
    ASTM Coal
      Rank
    Measured (Mt)
    Indicated
      (Mt)
    Inferred (Mt)Surface
    mvB
    197
    31
    32Underground
    mvB
    143
    97
    199Total
    mvB
    468
    
    232


45

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Projected Mining Methods

Based on work to date by the Company, the Company believes that
the nature of the geology of Carbon Creek lends itself to employing several
mining methods to maximize the recovery of the any coal that may be mined. The
proposed mining methods include underground room and pillar mining with
continuous miners, surface contour and area mining using hydraulic excavators
and trucks and highwall mining. After a short ramp up period, it is proposed
that all mining methods would be employed concurrently throughout the proposed
20 year mine plan.

Surface mining is currently projected to occur in two areas
designated as the Northern Surface Mine and the Central Surface Mine. The
Northern Surface Mine is adjacent to Seven Mile Creek on the north side of the
property. The Central Surface Mine is just north of Nine Mile Creek. The
underground mining operations are projected to have two sets of portals
approximately three kilometres north of Seven Mile Creek and three sets of
portals approximately two kilometres south of Seven Mile Creek. Highwall mining
is anticipated to occur throughout the surface mining areas along the outcrops
of the various seams after contour mining has taken place.

Projected Project Infrastructure

Based on current information, the Company anticipates that coal
from the underground mine portals in the north and south of the property would
be delivered to the coal processing plant, located at Carbon Inlet, by overland
conveyors to two hard coking coal ROM storage domes, each with a capacity of 90
kilotons (Kt). Each of the streams would be fed into a rotary breaker for
destoning prior to delivery to the ROM storage domes. Semi soft/PCI ROM from the
Northern and Central surface mines as well as the contour mining operations
would be trucked to the truck tip, and then fed into either the single thermal
or two semi soft/PCI coal ROM storage domes (capacities of 25Kt and 70Kt
respectively), after destoning in a rotary breaker. Provision would be made for
emergency ROM stockpile areas in addition to the storage domes.

Following beneficiation, the respective clean coal products
would be fed into hard coking, semi soft/PCI and thermal storage domes of 80Kt,
50Kt and 2Kt respectively (or emergency stockpiles) prior to loading onto
barges. Product logistics would need to be controlled from the plant site to
ensure that clean coal is fed directly onto trains at Mackenzie without the need
for domes or stockpiles at the rail loop.

The administration block, mine dry, maintenance shop and
warehouses are proposed to be located adjacent to the plant site at Carbon
Inlet. Each of the underground mine portals would be serviced by satellite
warehouses and personnel facilities.

Power for the mining operation would be fed via a BC Hydro line
from the electricity supply facility at the WAC Bennett Dam. Distribution on the
mine site would be via a main substation located at the plant site, and further
distribution through appropriately located substations at each of the mining
operations. It is anticipated that maximum power demand would range from 8
megawatt (MW) at the commencement of mining operations to approximately 43MW at
full production.

Water for the operation would be sourced from Williston Lake.
However, maximum use is planned to be made of water captured from dirty water
runoff drains and plant recycle water.

Access to the mine site would be via the Johnson Creek Forestry
Service Road, although this would have tpo be upgraded to accommodate the
anticipated high volume of personnel transport and material delivery vehicles.

46

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Market Studies and Contracts

Market Study

In 2012 the Company commissioned an independent market
analysis, and a summary or the results of and the Companys conclusions from
that market analysis are presented below.

Based on washability testing of coals from Carbon Creek, three
potential products were identified for sale onto the seaborne coal market:

- Carbon Creek HCC, comprising the Lower Seams (Seams 14-40).
- Carbon Creek high volatile metallurgical coal (HV Metcoal), comprising
  the Upper Seams (Seams 46-63), which would be suitable either as a semi-soft
  coking coal (SSCC), or for injection into the blast furnace as a PCI.
- Carbon Creek thermal coal, comprising oxidized or partially oxidized coal.

The quality characteristics of the three Carbon Creek products
were compared to a series of benchmark coals traded internationally, to arrive
at appropriate pricelines for each of the three products:

- Carbon Creek HCC is evaluated at a USD 10/t discount to the generally
  reported coking coal Headline Pricing.
- Carbon Creek HV Metcoal is benchmarked on the basis of both the semi-soft
  and the PCI coals. As a High Vol PCI coal, the price is taken as 85% of the
  price of the prime Low Volatile PCI coals; as a High Vol SSCC, it is
  benchmarked at a USD 8/t discount off the price of the major semi-soft coals.
- Carbon Creek Thermal is compared with New South Wales (NSW) thermal coals
  contracted to the Japanese Power Utilities (JPU); based on heat value
  differentials, Carbon Creek Thermal is priced at a 12% premium to the NSW
  thermal coals.

Since the 2012 market study noted above, metallurgical coal
pricing has been in decline, with the most recent Quarterly Pricing settled at
USD 143/t. Spot prices in April 2014 have been as low as USD 105/t for premium
benchmark HCC. In addition, many of the major banks have revised downward their
long-term price forecasts and have cut their anticipated metallurgical coal
price for 2014 and lowered projections for coming years.

Recent independent research suggests that the seaborne
metallurgical coal market is presently oversupplied, and available supply
capability is more than adequate to meet projected demand to 2020. However, this
research also suggests that, post-2020, a theoretical supply gap emerges that
would need to be filled through production from projects not currently in the
existing supply chain, such as Carbon Creek.

Environmental Studies, Permitting, and Social or Community
Impact

Production at the proposed Carbon Creek Metallurgical Coal Mine
is anticipated to exceed 250,000tpa and will therefore be regulated under the
Act. See 4B Business Overview  Regulatory and Environmental Matters 
Environmental and Permitting.

The Carbon Creek Project Description has been completed and
accepted (i.e., a Section 10 Order was issued by EAO on May 9, 2012), and a
first draft Application Information Requirements (AIR) for an EAC application
has been prepared. However, due to the Companys difficulty is securing funding,
work on the draft AIR (which will require further review by a technical Working
Group and public consultation prior to being finalized) has ceased, and it is uncertain when and if
the draft will be submitted for further review. Following the finalization and
acceptance of the AIR, the Company would then be required to prepare and submit
an effects assessment report and then submit the final EAC Application.

47

---

The key component of the Carbon Creek EA process is the
collection of environmental baseline data within the Carbon Creek area, as
required by the pre-application EA process. Although the Company had commenced a
number of programs to collect baseline data, termination of these programs means
that the data collected to date is no longer valid, and the programs will have
to be restarted in connection with the Companys restart of the EA process. This
will significantly delay the Companys ability to proceed with the EA process in
the future.

Cardero Coal will placing special emphasis on the evaluation of
a number of potential environmental effects of any mine at Carbon Creek, based
on several criteria (e.g., similar issues in the same geographical area, other
coal mines, etc.), specifically:

- Potential ecological effects of selenium, sulphate and nitrate on aquatic
  biota
- Effects of mining activities on local bull trout (a blue-listed species)
  populations
- Metal leaching/acid rock drainage potential from ore
- Human health impacts of coal dust
- Archaeological concerns
- Habitat displacement impacts on large ungulates.

As part of the EA, a closure and reclamation plan will need to
be developed, in order to assure the long-term sustainability of the property.
Moreover, when Carbon Creek begins active operations, an Environmental
Management Plan (EMP) will be developed as the mine is constructed and begins to
operate. In addition to completing the EA process, other permits must be
obtained. While the EA process may allow for concurrent processing of
approvals with the EA, this does not occur until later in the EA process. Some
of the key permits include:

- Mines Actpermit (MEM) - to include details of mining and
  reclamation plans, as well as provisions for environmental protection. The
  permit will also require posting of appropriate financial securities to cover
  reclamation and closure costs.
- Environmental Management Actfor waste water discharges combined
  with the Waste Management Act, (MOE; Environmental Protection
  Division). Air quality impacts and associated approvals are regulated under
  the Environmental Management Act and the corresponding Waste Discharge
  Regulations. A permit issued under the Environmental Management Actincorporates enforceable standards that apply to the coal mining industry.
- Water Act(MOE; Water Stewardship Division) - water license approval
  to divert and use surface water will allow the license holder to divert water
  for the project.
- Fisheries Act (S. 37) (DFO) -based upon the proposed use of a
  transportation route within Williston Lake, and potential impact to fish
  habitat in the lake and tributaries of the lake (including the Carbon Creek
  watercourse), a federal permit under the Act could be required for the
  project. The need for this permit would trigger federal involvement in the EA
  process.

Community and Stakeholder Consultation

Cardero Coal intends establish mutually-beneficial
relationships with the communities in which it operates; maintain knowledge of,
and sensitivity to, the needs of neighbouring communities and local cultures, in
particular, First Nations; consult with communities to develop a process to
manage communications, activities and address local concerns; and, apply a local
preference hiring policy.

48

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To date, Cardero Coal has undertaken extensive consultation and
engagement with provincial and federal government representatives, First Nations
and local community stakeholders. Consultations with local and regional First
Nations (FN) groups are required as part of the EA process. The level of
consultation will vary depending upon whether the lands are within, or have any
impacts on, traditional territories identified under Treaty 8 (or other FN
groups), or if the project is outside of these lands and covered under
Aboriginal Rights and Title requirements. Successful FN consultation provides
the groundwork for obtaining a social license for the project to operate.
Therefore, consultation with FNs similar to those discussions with other
stakeholders will be required. However, such activities have been curtailed
since mid-2013 as a consequence of the lack of available funding.

Significant Factors and Risks

The required exploration and any future mining operation does
not utilize unique technologies that might be subject to challenge by third
parties. However, Carbon Creek will need to work its way through the EA process,
as well as other permitting processes. FN consultation is a critical element of
the project development that requires a great deal of commitment, so that
consensus among parties is reached to support the long-term sustainability of
the project. Although engagement was initiated to obtain FN support for early
project activities (i.e., exploration program), the Companys financial status
have made it difficult to sustain such engagement and it would need to be
restarted in connection with any advancement of Carbon Creek. FN members have
been employed in the past exploration programs, and there is a plan to involve
FN members in environmental monitoring and other future activities. Also, hiring
and training miners, particularly underground miners, will be challenging given
the tight labour market in the region. Environmental considerations will need to
be comprehensively addressed during the EA process; water quality is likely to
be a focus of study. Additionally, direct and indirect impacts to wildlife
populations will be an important issue addressed during the EA process. The
Company believes that none of these issues appear to represent insurmountable
hurdles and, with a pro-active approach with good process management, it should
be possible to advance Carbon Creek to the BFS stage of project investigation.

However, as noted above, the Company does not presently plan to
proceed with a BFS or to pursue any further activities in support of an
application for an Environmental Assessment Certificate or in connection with
any other permitting-related activities at this time.

For the fiscal year ending October 31, 2014, the Company
proposes to initially assess the desirability of proceeding with a new optimized
and restated Prefeasibility Study (New PFS) the Carbon Creek 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.

ITEM
4A.UNRESOLVED STAFF COMMENTS

Not applicable.

49

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ITEM
5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The Company is in the business of acquiring, exploring and
evaluating interests in mineral properties. The Companys current material
property interest is held for the purposes of exploration for coal (Carbon
Creek), although the Company also retains interest in minor properties
prospective for precious and base metals (Mina Angela, Organullo). The following
discussion explains the variations in the key components of the Companys year
over year operating results and should be read in conjunction with the Companys
audited consolidated financial statements and the related notes thereto, which
are prepared in accordance with IFRS as issued by the IASB. Yearly results can
vary significantly depending on whether the Company has abandoned any properties
or granted any stock options.

The Company has adopted IFRS on November 1, 2011 with a
transition date of November 1, 2010. Under IFRS 1 First time adoption of
International Financial Reporting Standards (IFRS 1), the IFRS standards
are applied retrospectively at the transition date with all adjustments to
assets and liabilities as stated under GAAP taken to deficit, with IFRS 1
providing for certain optional and mandatory exemptions to this principle.

Below are the adjustments necessary for the IFRS transition
taken at the transition date:

|(a) | Share-based payment transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | IFRS 1 allows that full retrospective application may be
      avoided for certain share-based instruments depending on the grant date,
      vesting terms and settlement of any real liabilities. A first-time adopter
      can elect to not apply IFRS 2 to share-based payments granted after
      November 7, 2002 that vested before the later of (i) the date of
      transition to IFRS and (ii) January 1, 2005. The Company has elected this
      exemption and will apply IFRS 2 to only unvested stock options as at the
      transition date of November 1, 2010.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(b) | Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The estimates previously made by the Company under
      pre-changeover Canadian GAAP were not revised for the application of IFRS
      except where necessary to reflect any difference in accounting policy or
      where there was objective evidence that those estimates were in error. As
      a result the Company has not used hindsight to revise estimates.                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(c) | Business combination                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | IFRS 1 allows that a first-time adopter may elect not to
      apply IFRS 3 Business Combinations (IFRS 3) retrospectively to business
      combinations prior to the date of transition, avoiding the requirement to
      restate prior business combinations. The Company has elected to only apply
      IFRS 3 to business combinations that occur on or after November 1,
      2010.                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(d) | Fair value as deemed cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company may elect among two options when measuring
      the value of its assets under IFRS. It may elect, on an asset by asset
      basis, to use either historical cost as measured under retrospective
      application of IFRS or fair value of an asset at the opening balance sheet
      date. The Company has elected to use historical cost for its
  assets.                                                                                                                                                                                                       

50

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5.A            
Operating Results

Year ended October 31, 2013 compared to year ended October
31, 2012

The Companys general and administrative costs were $8,941,569
(2012- $12,267,892), and reviews of the major items are as follows:

- Consulting fees of $1,517,453 (2012 - $1,071,977) includes $227,155 (2012 -
  $106,936) of share- based payments. The increase was primarily due to the
  Company engaging a financial advisor, at a cost of $737,908, to assist the
  Company in raising capital;
- Insurance of $195,431 (2012 - $109,318), increased primarily due to an
  adjustment of $35,774 to the understated insurance expenses related to the
  prior years and the addition of $36,809 of required insurance for the
  Companys CMTL subsidiary in the USA;
- Investor relations of $143,355 (2012 - $429,302) includes $37,644 (2012 -
  $204,222) of share-based payments. The remaining decrease is due to less
  activity of the Company as a result of the equity market slow down during the
  year. For the same reason, corporate development of $266,723 (2012 - $368,112)
  and travel of 276,024 (2012 - $769,827) also decreased;
- Office costs of $794,148 (2012 - $970,157), decreased primarily due to a
  slow-down of activities in the Company, curtailing operations in Cardero Coal,
  and significant reduction in activity in the Ghana and South American
  subsidiaries;
- Professional fees of $1,963,715 (2012 - $1,806,456), increased due to legal
  fees in respect of the renegotiation and exercise of the Johnson Property
  Option at Carbon Creek, work on a proposed $7M loan facility that did not
  close and work related to a demand notice on outstanding indebtedness to a
  secured creditor;
- Regulatory and transfer agent fees decreased to $144,041 (2012 - $237,972),
  primarily as a result of decrease in TSX listing fees due to smaller market
  capitalization and a decrease in filing fees due to private placements in both
  the TSX and NYSE;
- Salaries and benefits of $3,001,441 (2012 - $5,419,163), decreased due to a
  significant reduction in share-based payments of $390,774 (2012 - $2,859,996).
  Excluding share-based payments salaries and benefits increased by $51,500
  during the year due to hiring more employees during the earlier part of the
  year and severance paid to former CEO, which was also offset by a reduction in
  employees in the last quarter of the year;
- Property evaluations of $172,810 (2012 - $603,819) decreased due to less
  active exploration activities; and
- Depreciation decreased to $237,408 (2012 - $349,544), primarily due to the
  decreased net asset value in the current period.

Other items showed a loss of $21,006,281 in the current year
versus an income of $1,760,569 in the comparable period of 2012. 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 $293,338 (2012 - $40,143), of which $(24,412) (2012 
  $40,143) was for providing metallurgical testing services, $284,056 was for
  recovery of an outstanding receivable and $33,694 came from the sale of minor
  assets.

51

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- Interest expenses of $1,389,964, of which $1,319,370 was the interest on
  the USD 5.5M secured notes issued in April 2013 and USD 5.7M secured notes
  issued in August, 2013 payable during the current year versus interest income
  of $149,434 of which $123,367 was from the repayment of the Trevali Mining
  Corporation (Trevali) loan, in the comparative period;
- Realized loss of $39,562 from sale of Balmoral Resources Ltd. common shares
  (Balmoral) (232,000 shares) and Ethos Capital Corp (Ethos) (66,000),
  compared to a realized gain of $9,486,396 from the sale of International Tower
  Hill Mines Ltd. (ITH) (3,053,933 shares), Trevali (15,308,953 shares), and
  Corvus Gold Inc. (Corvus) (1,655,711 shares) common shares in the
  comparative period;
- The unrealized loss on warrants of Trevali in the current period of
  $407,487 versus unrealized loss of $754,917 in the comparative period;
- Due to the substantial decline in the fair value of available-for-sale
  investments in Abzu Gold Inc. (Abzu), Wealth Minerals Ltd. (Wealth),
  Indico Resources Ltd. (Indico) and Xiana Mining Inc. (Xiana) common
  shares, the Company recorded impairment losses of $1,437,030 (2012 -
  $3,767,563), decline in fair value of Abzu, Wealth, Indico and Xiana common
  shares). These changes are due to market fluctuations which are entirely
  outside of the Companys control;
- The Company recognized an impairment loss of $198,239 (2012  $1,112,726)
  from amount due from Indico, a related party (2012  Wealth and Xiana, also
  related parties). The Company assessed that they are unlikely collectable in
  the foreseeable future;
- The Company recognized an impairment loss of $389,487 (2012 - $Nil) on its
  property, plant and equipment in Ghana; and

The Company recognized an impairment loss of $16,447,113 (2012
- $3,554,667) during the year on the Titac and Longnose properties in the USA
($3,775,254) and on the Middle Sheini and Sheini South properties in Ghana
($12,671,859). In the previous year the Company had an impairment loss of
$3,554,671 on its Mexico properties ($507,193), Argentinean properties
($2,672,762) and on the Sheini North property in Ghana ($374,716).

Year ended October 31, 2012 compared to year ended October
31, 2011

During the year ended October 31, 2012, the Company incurred a
net loss of $11,594,099 (2011 - a net loss of $25,148,877).

The Companys general and administrative costs were $12,267,892
(2011 - $12,993,141), and reviews of the major items are as follows:

- Consulting fees of $1,071,977 (2011 - $1,324,798) includes $106,937 (2011 -
  $15,135) of share-based payments. The decrease was due to some consultants
  hired in the comparative period who were no longer retained in 2012 due to a
  slow-down of activities in the South American subsidiaries;
- Corporate development of $368,112 (2011 - $606,239), decreased due to less
  active corporate development activities in 2012;
- Depreciation increased to $349,544 (2011 - $244,935), primarily due to the
  increased depreciation of the metallurgy lab, the camp facility in Ghana, the
  acquisition of Cardero Coal, and the relocation of the Vancouver office in
  April 2011;

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- Investor relations of $429,302 (2011 - $650,779) includes $204,222 (2011 -
  $294,066) of share-based payments. The remaining decrease is due to less
  active activities due to slow down of the equity market in 2012;
- Office costs of $970,157 (2011 - $736,844), increased primarily due to
  increased activities in Cardero Coal and the Ghana office;
- Professional fees of $1,806,456 (2011 - $977,197), increased due to
  share-based payments of $179,305 (2011 - $Nil) and legal fees paid for the
  advice on corporate structuring and in Ghana;
- Property evaluations of $603,819 (2011 - $3,610,508), decreased primarily
  due to the exploration costs of $3,041,310 on Sheini incurred prior to the
  Company officially obtained the property licenses from the local government in
  the comparative year;
- Regulatory and transfer agent fees increased to $237,972 (2011 - $221,064),
  primarily as a result of increased filing requirements due to the private
  placement completed on November 29, 2011;
- Salaries and benefits of $5,419,163 (2011 - $4,286,210), increased due to
  the share-based payments of $2,859,996 (2011 - $992,734), and an increase in
  personnel due to the acquisition of Cardero Coal; and
- Travel expenses of $769,827 (2011 - $225,639), as a result of increased
  activities in Cardero Coal and the subsidiary in Ghana.

Other items showed an income of $1,760,569 in 2012 versus a
loss of $7,737,814 in the comparable period of 2011. 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 $40,143 (2011 - $Nil) from providing metallurgical testing
  services;
- Interest income of $149,434, of which $123,367 was from the repayment of
  the Trevali Mining Corporation (Trevali) loan versus an interest income of
  $1,659,273, of which $516,096 was from the repayment of the Trevali loan in
  the comparative period;
- Realized gain of $9,486,396 from the sale of ITH (3,053,933 shares),
  Trevali (15,308,953 shares), and Corvus (1,655,711 shares) common shares,
  compared to a realized gain of $14,245,612 from the sale of ITH (1,537,290
  shares), Trevali (790,000 shares), and Corvus (225,000 shares) common shares
  in the comparative period;
- The unrealized loss on warrants of Trevali and Abzu in the current year of
  $754,917 versus unrealized loss on warrants of Trevali, Abzu and Kria of
  $3,252,256 in the comparative period;
- Gain on the loan settlement with Trevali in the amount of $1,368,953 (2011
  - $Nil);
- Gain on the reclassification of investments in Abzu from equity investments
  to resource related investments of $Nil (2011 - $3,019,523);
- Due to substantial decline in the fair value of available-for-sale
  investments in Abzu, Wealth, Indico, and Dorato common shares, the Company
  recorded impairment losses of $3,687,101 (2011 - $11,335,318). These changes
  were due to market fluctuations which are entirely outside of the Companys
  control;

53

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- The Company recognized an impairment loss of $1,112,726 from amounts dues
  from related parties Wealth and Dorato. The Company assessed that they were
  unlikely collectable in the foreseeable future. (2011 - $Nil);
- The Company wrote off $3,554,667 in exploration and evaluation assets in
  the current year versus $12,206,614 in prior year; and
- The Company recognized loss on equity investments of $Nil (2011 - $793,194)
  since Cardero Coal is now wholly-owned by the Company (2011 - 45.5% ownership
  interest) and the Company owned only 15.6% of Abzus issued and outstanding
  common shares (2011 - 16.66%).

5.B            
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, as noted under Item 4.A - History and Development of
the Company, the Company has also successfully secured funding during the fiscal
year ended October 31, 2013 through private placements of equity securities,
sales of the Luxor and Kopple Notes and the establishment of the Credit Line.
While the sale of the notes and establishment of the Credit Line generate
working capital, they 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.

The Company expects that it will operate at a significant
loss for the foreseeable future, notwithstanding the revenue recognized from the
sale of resource based investments, recent private placements, the sale of the
Luxor and Kopple Notes and the establishment of the Credit Line. 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.

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, in July 2013, 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 operated by CMTL and to dispose of
the existing laboratory equipment. While it does not anticipate receiving any
significant proceeds in connection with such action, the Company believes that
this will further significantly reduce its ongoing general and administrative
expenses associated with the maintenance and operation of the laboratory. As
well, the Company will also pursue the shut-down of its remaining US
subsidiaries.

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The Company anticipates that its monthly burn rate for general
and administrative expenses is approximately $175,000, and that the undrawn
amount available as at April 30 , 2014 under the Credit Line is approximately
USD 1,757,000. The Company believes that this amount is sufficient to fund its
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 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 Coal Lease, which will significantly and
materially adversely affect Carbon Creek and the value thereof to the Company,
as the Coal Lease represents approximately 50% of the estimated coal resource at
Carbon Creek. The Company is presently negotiating with the lessor under the
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, and
if it unsuccessful in doing so then the Coal Lease will be terminated, effective
May 30, 2014.

As of October 31, 2013, the Company reported cash and cash
equivalents of $291,277 compared to $2,142,499 at October 31, 2012. The change
in cash and cash equivalents over the year is comprised of funds used by
investing activities of $9,225,336 and $6,588,272 from operations, and
$13,955,070 provided by financing activities due to proceeds from the Offering,
the FT Offering and the sale of the Luxor and Kopple Notes. As at October 31,
2013, the Company had a working capital deficit of $6,498,875 compared to
working capital of $82,287 at October 31, 2012.

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.

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, but there can be no assurance that it will be
successful in doing so, or that such creditors will not commence legal action
against the Company to recover such debts in the meantime.

The Company was required to incur $1,661,521 in exploration
expenditures for flow-through purposes on or before December 31, 2013 in respect
of the FT Offering. 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. The Company may also be
required to reimburse subscribers in the FT Offering in respect of the
un-incurred expenditures. To date, the Company has not determined the amount, if
any, of such potential reimbursement.

On March 4, 2014 the Company received a British Columbia
Mineral Exploration Tax Credit refund in the amount of $3,734,023 plus interest
of $40,628 for a total of $3,774,651 and on March 5, 2013 the Company paid USD 3,906,794 (representing the USD 3,700,000 principle
amount plus USD 206,794 in interest, of which USD 3,360,957 was paid in cash and
USD 545,838 was paid from the Credit Line) towards the Kopple Note due on or
before March 14, 2014.

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5.C            
Research and Development, Patents and Licences, etc.

The Company does not have any specific research and development
policies, nor has it spent any amounts specifically on research and development.
However, should work by the Company in connection with the exploration,
development or mining of its properties (including metallurgical and mineral
processing studies) develop, produce or result in the design of methods,
processes or inventions which may be patentable, it is the Companys policy to
apply for patents in respect of any such methods, processes or inventions. The
Companys business is not dependent in any way upon any such patents being
applied for or granted.

5.D            
Trend Information

As a junior mineral exploration company, the Company is subject
to, and is affected by, not only general economic trends which impact the
economy in general and affect the demand for, and hence the price and supply of,
the minerals for which it is exploring and consequently the attractiveness of
the Common Shares as an investment, but also competing land use policies which
may restrict the availability of open areas for mineral exploration activities.
However, there are no specific trends, uncertainties, demands, commitments or
events known to the Company that are likely to have a material effect on the
Companys business in a manner different from that of the mining industry in
general and the junior natural resource exploration sector in particular.

5.E            
Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on the
Companys financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors.

5.F            
Tabular Disclosure of Contractual Obligations

The following table discloses the Companys contractual
obligations for committed operating lease obligations as of October 31, 2013.
The Company does not have any long-term debt or loan obligations. Under the
terms of certain option agreements and mineral property leases, the Company is
required to make certain scheduled acquisition payments, incur certain levels of
expenditures, and make lease and/or advance royalty payments in order to
maintain and preserve the Companys interests in the related mineral properties.
If the Company is unable or unwilling to make any such payments or incur such
expenditures, the Company would lose or forfeit its rights to acquire or hold
the related mineral properties. However, such payments are optional, and the
Company can choose not to make such payments.

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ContractualObligations
    Payments Due by PeriodTotal
    Prior toOctober 31,2014 (12months)
    November 1,2014 toOctober 31,2017 (36months)
    November 1,2017 to October31, 2020 (36months)
    November 1,2020 toOctober 31,2023 (36monthsCarbon Creek MineralPropertyLeases/Option
    $38,609,230
    $5,523,830
    $12,085,400
    $10,500,000
    $10,500,000Operating LeaseObligations
    $3,753,800
    $352,202
    $1,375,353
    $1,810,201
    $216,044Total ContractualObligations
    $42,363,030
    $5,876,032
    $13,460,753
    $12,310,201
  $10,716,044


ITEM
6.            
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A            
Directors and Senior Management

The names, positions or offices held with Cardero, and
principal occupation over the last five years of the Directors and senior
management of Cardero as at April 30, 2014 are as follows:

Name
    Position
    Period of Service as Director orExecutive Officer(1)Hendrik Van Alphen
    President, Chief Executive Officer and Director
    Director since April 19, 1999 President
      from April 10, 2000 to June 1, 2011 and March 19, 2013 to present
      Chief Executive Officer from May 14, 2001 to November 9, 2011 and
      March 19, 2013 to presentLeonard Harris(2)(3)(4)(5)
    Director
    Since February 25, 2000Stephan A. Fitch(2)(3)(4)(5)
    Director
    Since May 31, 2006Robert Van Doorn
    Director
    Since April 4, 2014Lawrence W. Talbot
    Vice-President and General Counsel
    Vice-President and General Counsel since July
      1, 2006 Director from April 17, 2003 to September 13, 2012Blaine Bailey, CGA
    Chief Financial Officer
    Since November 9, 2011Keith Henderson, EurGeol
    Executive Vice President
    Vice-President, Exploration April 1, 2007 to
      November 9, 2001 Executive Vice-President since April 1, 2007


|(1) | All directorships expire at the next annual general
      meeting of the shareholders of Cardero. All officers hold office at the
      pleasure of the Board of Directors.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Denotes member of the Audit
Committee.                                                                                                                                     

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|(3) | Denotes member of the Compensation Committee.                             
|--- | --------------------------------------------------------------------------
|(4) | Denotes member of the Sustainable Development
      Committee.            
|(5) | Denotes member of the Corporate Governance and Nominating
      Committee.

Hendrik Van Alphen(President, Chief Executive
Officer and Director)  Mr. Van Alphen has been in the mining business for over
28 years, first as an exploration drilling contractor, then as President of
Pacific Rim Mining Corp. Mr. Van Alphen laid the foundation for Pacific Rim
becoming a successful South American-based resource company. He was also
instrumental in the Companys entrance into South America. He has been a
director of the Company since 1999, the Chief Executive Officer of the Company
from May 14, 2001 to November 9, 2011 and since March 19, 2013 and President of
the Company from April 10, 2000 to June 1, 2011 and since March 19, 2013. He is
presently the President and Chief Executive Officer and a director of Wealth
Minerals Ltd. and a director of Ethos Capital Corp. and Indico Resources Ltd.,
all companies listed on the TSX Venture Exchange.

Leonard Harris(Director)  Mr. Harris is a
professional engineer with a Metallurgy diploma and 53 years experience in all
aspects of mineral processing and mining operations world-wide, a significant
part of which has been in South America. Mr. Harris spent 16 years with Cerro de
Pasco Corporation before joining Newmont Mining Corporation, where he served as
President and General Manager of Newmont Peru Limited and Vice-President and
General Manager of Newmont Latin America. Mr. Harris was General Manager
(involved in construction and operation) of the Minera Yanacocha gold mine in
Peru. Since 1995, Mr. Harris has been a consultant and director of several
mining and mineral exploration companies including Glamis Gold Ltd., Indico
Resources Ltd., Sulliden Gold Corporation Ltd., Solitario Exploration &
Royalty Corp., Golden Arrow Resources Corporation, Alamos Gold Inc., Pediment
Gold Corp., Corriente Resources Inc., Canarc Resource Corp. and Endeavour Silver
Corp.

Stephan A. Fitch(Director)  Mr. Fitch is a
co-founder and a managing director of the London based IAG Holdings Ltd. (IAGH),
a private company which specializes in international merchant banking
activities. He has been involved in a broad range of international corporate
finance/investment banking activities for over 28 years specializing primarily
in start-up, venture capital and small-capitalized public companies. Prior to
joining IAGH, Mr. Fitch was co-founder and Executive Vice President of New World
Capital, Inc. New World was established in 1992 and was involved in corporate
finance and investment banking activities throughout Europe and the U.S. Prior
to joining New World, Mr. Fitch co-founded, in 1986, Somerset Partners Ltd., a
Denver based partnership specializing in M&A activities. From 1984 to 1986,
Mr. Fitch worked as an assistant research analyst for Cambridge Research and
Management Group, a registered commodities trading advisor, based in Century
City, California.

Robert Van Doorn (Director) - Mr. Van Doorn is a
businessman with over 20 years of experience in the mineral resource business.
He is currently (since 2006) the Executive Chairman of Namakwa Uranium
(Proprietary) Limited, a private South African company involved in the gold and
uranium business in South Africa. From 2005 to 2009, Mr. Van Doorn was the
President and CEO of Mundoro Mining Inc., a public company involved with the
development of the Maoling Gold project in China and from 2003 to 2004 he was
the Executive Vice-President of Rio Narcea Gold Mines Ltd., a public company
with projects in Spain, Portugal and Mauritanea. From 2002 to 2006, he was
involved with Golden China Resources Corporation, a joint venture with Kingsway
Capital (a Hong Kong merchant bank) involved with investments in the Chinese
precious metals sector, which evolved into a mid-size mineral exploration
company. From 1997 to 2002, Mr. Van Doorn was a senior mining analyst at Loewen,
Ondaatje, Mccutcheon, where he was active in creating corporate finance
opportunities, publishing research reports and raising funding for natural
resource companies. He is currently a director of Romarco Minerals Ltd. (since
2002), a TSX listed public mineral exploration company. Mr. Van Doorn holds a
M.Sc. in Mining Engineering (Delft University, 1980) and an MBA (University of
Cape Town, 1985).

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Lawrence W. Talbot (Vice President and General
Counsel)  Mr. Talbot is a mining lawyer with over 28 years experience
representing a wide range of clients in the mining industry, from individual
prospectors and junior and mid-size explorers and producers through to major
mining companies, in both the hard-rock and industrial mineral fields. He has
extensive experience acting for public natural resource companies and providing
advice on all aspects of their businesses, including corporate finance,
securities and regulatory matters, corporate governance and shareholder issues,
and all aspects of corporate acquisitions, takeovers, divestitures and
reorganizations. He is a director and/or officer of a number of public natural
resource companies, including International Tower Hill Mines Ltd., Wealth
Minerals Ltd., Balmoral Resources Ltd. and Minaurum Gold Inc. Prior to July 1,
2006 he was a partner in one of Canadas largest law firms, and now acts as
general counsel to a select group of public companies, including International
Tower Hill Mines Ltd., Wealth Minerals Ltd. and Corvus Gold Inc.

Blaine Bailey, CGA (Chief Financial Officer) 
Mr. Bailey is a Certified General Accountant who has worked with numerous
private and public companies over the past 21 years. Mr. Bailey has served as
Chief Financial Officer of Cardero Coal since July 2008, and as principal of
Promaid Services Ltd. from September 2002 to January 2011. Mr. Bailey brings
complementary skills to Cardero in the areas of finance, administration and
financial reporting.

Keith Henderson, EurGeol (Executive Vice
President)  Mr. Henderson, formerly Vice President Exploration, of Cardero,
brings 20 years global mining-industry experience. Prior to joining Cardero,
Mr. Henderson was Project Manager for Anglo Coals Canadian subsidiary, focused
on metallurgical coal deposits in northeast British Columbia. Mr. Henderson is a
mining industry executive with global experience in Africa, Europe, and the
Americas. He has extensive knowledge of the exploration and mining business from
both a major and junior public company perspective. With a proven track record
he has successfully managed exploration and mining companies through significant
growth periods. Mr. Henderson was educated in Europe, graduating with B.Sc.
(Hons) and M.Sc in Geology, and has extensive experience in various mineral
deposit types and commodities including precious metals (gold, silver), base
metals (copper, zinc, nickel) and bulk commodities such as metallurgical coal
and iron ore.

There are no family relationships among any of the Directors or
executive officers of Cardero. There are no arrangements or understandings with
major shareholders, customers, suppliers or others pursuant to which any person
referred to above was selected as a director or member of senior management.

The following table identifies, as of April 30, 2014, the name
of each Director and executive officer of Cardero and any public company (i)
which employs such Director or officer, (ii) for which such Director or officer
currently serves as a director or executive officer of such other company, or
(iii) which is affiliated with such Director or executive officer (other than
Cardero):

Name
    Name of Company
    PositionHendrik Van Alphen
    Wealth Minerals Ltd. Ethos
      Capital Corp. Indico Resources Ltd.
    President, Chief Executive
      Officer and Director Director DirectorLeonard Harris
    Canarc Resource Corp.
      Solitario Exploration & Royalty Corp. Wealth Minerals Ltd.
      Coronet Metals Inc.
    Director Director
      Director DirectorStephan A. Fitch
    NoneRobert Van Doorn
    Romarco Minerals Inc.
    Director


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Name
    Name of Company
    PositionLawrence W. Talbot
    Balmoral Resources Ltd.
      Minaurum Gold Inc. Pedro Resources Ltd. Corvus Gold Inc.
      Wealth Minerals Ltd.
    Director Director
      Director Vice-President & General Counsel Vice-President
      & General CounselBlaine Bailey
    Geodex Minerals Ltd. Qumana
      Software Inc. Arrowstar Resources Ltd.
    Chief Financial Officer
      Director and Chief Financial Officer Chief Financial OfficerKeith Henderson
    Remo Resources Inc.
      Providence Resources Corp. Desert Star Resources Ltd.
    Director Director
      Director


6.B            
Compensation

Executive Compensation

For the fiscal year ending October 31, 2013, the Company paid
an aggregate of $777,749 in salaries and wages, $284,000 in consulting fees,
$87,511 in legal fees, $270,000 in severance payments and $132,000 in directors
fees to its Directors and senior management as a group.

Under applicable Canadian securities laws, Cardero is required
to disclose the compensation paid to the following individuals (referred to as
Named Executive Officers or NEOs):

| | (a) | the CEO;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (b) | the CFO;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (c) | each of the three most highly compensated executive
      officers of the Company, including any of its subsidiaries, or the three
      most highly compensated individuals acting in a similar capacity, other
      than the CEO and CFO, at the end of the most recently completed financial
      year whose total compensation was, individually, more than CAD 150,000, as
      determined in accordance with subsection 1.3(6) of Form 51-102F6, for that
      financial year; and
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (d) | each individual who would be an NEO under paragraph (c)
      but for the fact that the individual was neither an executive officer of
      the Company or its subsidiaries, nor acting in a similar capacity, at the
      end of the financial year;                                                                                                                                                                                                                                     

During the financial year ended October 31, 2013, Cardero had
six NEOs, being Michael Hunter (CEO and President to March 19, 2013); Hendrik
Van Alphen (variously, CEO and President or Managing Director), Blaine Bailey
(Chief Financial Officer), Angus Christie (Chief Operating Officer to September
30, 2013); Lawrence W. Talbot (Vice-President and General Counsel), and Keith
Henderson (Executive Vice-President).

The following table is a summary of the compensation paid to
the NEOs during the three (3) most recently completed financial years:

Name andPrincipal Position
    FiscalYear(1)
    Salary(CAD)
    Share-basedAwards(CAD)
    Option basedAwards(CAD)(2)
    Non-equity incentivePlan Compensation
    PensionValue
    All othercompensation(CAD)
    TotalCompensation(CAD)Annualincentiveplans
    Long-termincentiveplansMichael Hunter(3)Former
      President & CEO
    2013 2012 2011
    123,750 267,500 33,333
    nil nil nil
    16,298 741,712 1,060,079(8)
    nil 25,000(4)35,000(5)
    nil nil nil
    nil nil nil
    320,000 (12)nil nil
  460,048 1,034,212 1,128,412


60

---

Name and
      Principal Position
    Fiscal
      Year(1)
    Salary (CAD)
    Share- based
      Awards (CAD)
    Option based
      Awards
      (CAD)(2)
    Non-equity
      incentive Plan Compensation
    ***Pension***Value
    All other
      ***compensation***(CAD)
    Total
      ***Compensation*** (CAD)Annual
      incentive plans
    Long-
    term incentiveplansBlaine Bailey(6)CFO
    2013 2012 2011
    178,333 183,333 n/a
    nil nil n/a
    26,337 399,467 n/a
    nil 10,000(4)n/a
    nil nil n/a
    nil nil n/a
    nil nil n/a
    204,670 592,800 n/aHendrik Van Alphen(3)Current
      President & CEO
    2013 2012 2011
    172,000 180,000 180,000
    nil nil nil
    46,226 265,137 98,375
    nil 25,000(4)280,000(5)
    nil nil nil
    nil nil nil
    nil nil nil
    218,226 470,137 558,375Keith Henderson Executive Vice-
      President
    2013 2012 2011
    nil nil 82,500
    nil nil nil
    33,255 194,739 134,399(9)
    nil nil 187,500(5)
    nil nil nil
    nil nil nil
    234,000(10)255,000(10)nil
    267,255 449,739 404,366Lawrence W. Talbot Vice-President &
      General Counsel
    2013 2012 2011
    89,166 100,000 100,000
    nil nil nil
    18,291 92,388 60,538
    nil 15,000(4)200,000(5)
    nil nil nil
    nil nil nil
    87,511(7)87,500(7)82,500(7)
    194,968 294,888 443,038Angus Christie(11)Former COO
    2013 2012 2011
    214,500 108,333 n/a
    nil nil n/a
    33,255 177,618 n/a
    nil nil n/a
    nil nil n/a
    nil nil n/a
    nil nil n/a
  247,755 285,951 n/a


| | (1) | Fiscal years ended October 31.                                                                                                                                                
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                               
| | (2) | Fair value of incentive stock option grants calculated
      using the Black-Scholes model based on the following assumptions: - for
      fiscal year ended October 31, 2013:

Options Granted
    Risk-Free Interest Rate
    Expected Life
    Expected Volatility
    Expected DividendsMay 28, 2013
    1.07%
    2 years
    72.07%
    -July 3, 2013
    1.19%
    7
      years
    75.78%
    -


- for the fiscal year ended October
31, 2012:

Options Granted
    Risk-Free Interest Rate
    Expected Life
    Expected Volatility
    Expected DividendsNovember 9, 2011
    0.90%
    2 years
    54.47%
    -January 26, 2012
    1.01%
    2 years
    54.89%
    -March 23, 2012
    1.23%
    2 years
    58.24%
    -September 27,
      2012
    1.10%
    2
      years
    63.88%
    -


- for the fiscal year ended October
31, 2011:

Options Granted
    Risk-Free Interest Rate
    Expected Life
    Expected Volatility
    Expected DividendsJanuary 28, 2011
    1.34%
    2 years
    59.03%
    -June 1, 2011
    1.45%
    2
      years
    49.89%
    -


| |     | The Company believes that the Black-Scholes model is an
      appropriate model to use for calculating the fair value of incentive stock
      options because, while the model was originally developed for valuing
      publicly traded options as opposed to non-transferrable incentive stock
      options and requires management to make estimates, which are subjective
      and may not be representative of actual results (changes in assumptions
      can materially affect estimates of fair values), this model is used by
      most junior natural resource companies and therefore represents an
      approach to valuation reasonably consistent with other junior natural
      resource companies. It is important to remember that, while incentive
      stock options can have a significant theoretical value (such as those
      reported above), until the option is actually exercised and the resulting
      common shares are sold at a profit, it has no value that can be realized
      by the holder. Many option grants expire unexercised and out-of-the-
      money.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (3) | Mr. Hunter was appointed as President of the Company on
      June 1, 2011 and as CEO of the Company on November 9, 2011. Mr. Hunter
      resigned as CEO, President and a director on March 19, 2013. Mr. Van
      Alphen was President until June 1, 2011, CEO until November 9, 2011 and
      Managing Director from November 9, 2011 until March 19, 2013, at which
      point he ceased to be Managing Director and was again appointed as CEO and
      President.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

61

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| | (4)  | These amounts represent cash bonuses awarded during the
      fiscal year ended October 31, 2012. These amounts reflect a discretionary
      annual bonus for Messrs. Hunter, Bailey, Van Alphen and Talbot.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (5)  | These amounts represent cash bonuses awarded during the
      fiscal year ended October 31, 2011. A portion of these amounts reflect a
      discretionary regular annual bonus, in an amount equal to their base
      salaries for Messrs. Van Alphen and Talbot and CAD 60,000 for Mr.
      Henderson, plus a special bonus in recognition of the efforts expended in
      the negotiation and completion of the acquisition of Cardero Coal to each
      of Messrs. Van Alphen, Talbot and Henderson in the amount of CAD 100,000
      each. Mr. Hunter also received a bonus of CAD 35,000, and Mr. Henderson
      also received a bonus of CAD 27,500, from Cardero Coal in connection with
      the successful conclusion of the transaction with the Company.                                                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (6)  | Mr. Blaine Bailey was appointed CFO of the Company on
      November 10, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (7)  | The Company pays Mr. Talbot an annual salary of CAD
      100,000 in his position as Vice-President & General Counsel. In
      addition, the Company entered into a retainer agreement dated May 1, 2007
      with Lawrence W. Talbot Law Corporation (LWTLC), a law firm in which Mr.
      Talbot is a shareholder, pursuant to which LWTLC agreed to provide legal
      services to the Company. Pursuant to the retainer agreement, the Company
      agreed to pay LWTLC a minimum annual retainer of CAD 82,500 (plus
      applicable taxes and disbursements). The retainer agreement may be
      terminated by LWTLC on reasonable notice, and by the Company on one years
      notice (or payment of one years retainer in lieu of notice). During the
      fiscal year ended October 31, 2013, the Company paid LWTLC CAD 87,511 for
      legal services (including fees, disbursements and taxes) (2012  CAD
      87,500; 2011  CAD 82,500).
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (8)  | This amount represents the value (calculated as noted in
      (2) above) of the incentive stock options issued to Mr. Hunter, in
      exchange for the Cardero Coal incentive stock options held by him, upon
      the completion of the acquisition of Cardero Coal on June 1,
  2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (9)  | This amount represents the value (calculated as noted in
      (2) above) of the incentive stock options issued to Mr. Henderson, in
      exchange for the Cardero Coal incentive stock options held by him, upon
      the completion of the acquisition of Cardero Coal on June 1,
  2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (10) | Consulting fees paid to Acuitas Consulting Ltd
      (Acuitas), a consulting company owned by Mr. Henderson. Acuitas provides
      management services to the Company comprising all duties and
      responsibilities performed by Mr. Henderson as Executive Vice-President of
      the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (11) | Mr. Christie commenced employment as COO on June 1, 2012
      and ceased as COO on September 30, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (12) | Represent CAD 270,000 in severance pay paid to Mr. Hunter
      in connection with his ceasing to act as the Companys CEO and President
      on June 5, 2013 pursuant to a resignation agreement between Mr. Hunter and
      the Company dated June 5, 2013 and CAD 50,000 paid to a consulting company
      owned by Mr. Hunter during the period June 1, 2013  October 31, 2013
      pursuant to a consulting agreement between the Company and the consulting
      company dated April 25, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                            

During the fiscal year ended October
31, 2013, the following stock options were granted to the Named Executive
Officers:

Name
    Securities under options
      granted (#)
    Option exercise price
      ($)
    Option expiration
      dateMichael Hunter (former CEO)
    350,000
    0.20
    May 28, 2015Blaine Bailey (CFO)
    440,000
    0.11
    July 3, 2020Hendrik Van Alphen (CEO)
    350,000 500,000
    0.20 0.11
    May 28, 2015 July 3, 2020Lawrence W. Talbot (Vice-President & General
      Counsel)
    200,000 150,000
    0.20 0.11
    May 28, 2015 July 3, 2020Keith Henderson (Executive Vice- President)
    200,000 400,000
    0.20 0.11
    May 28, 2015 July 3, 2020Angus Christie (Former COO)
    200,000 400,000
    0.20 0.11
    May 28, 2015 July 3, 2020


62

---

The following table sets forth details of all exercises of
stock options during the financial year ended October 31, 2013 by the Named
Executive Officers and the financial year-end value of unexercised options held
by Named Executive Officers on an aggregated basis:

Name
    Securities acquired
      on exercise (#)
    Aggregate value
      realized ($)
    Unexercised options at
      financial year-end (#) Exercisable/
      Unexercisable
    Value of unexercised
      in-the-money options at financial
      year-end ($) Exercisable/
      UnexercisableMichael Hunter
    nil
    nil
    875,000/nil
    nil/nilBlaine Bailey
    nil
    nil
    440,000/nil
    nil/nilHendrik van Alphen
    nil
    nil
    850,000/nil
    nil/nilLawrence W. Talbot
    nil
    nil
    350,000/nil
    nil/nilKeith Henderson
    nil
    nil
    600,000/nil
    nil/nilAngus Christie
    nil
    nil
    600,000/nil
    nil/nil


The Company does not provide pension, retirement or similar
benefits for its Directors or senior management.

Management Agreements

Cardero has entered into agreements with certain of its
Directors and members of its administrative, supervisory or management bodies,
as summarized below.

1. ******Cardero has entered into an agreement dated January 1, 2009 with
Hendrik Van Alphen, pursuant to which Mr. Van Alphen will continue to be
employed by Cardero on a part-time basis (75% of his working time) at a salary
of $180,000 per year. This agreement continued in force when Mr. Van Alphen was
the Companys Managing Director. This amount was reduced by 20% by agreement,
effective April 1, 2013. Cardero paid Mr. Van Alphen $172,000 (2012  $180,000;
2011  $180,000) during the fiscal year ended October 31, 2013. Pursuant to such
employment agreement, Mr. Van Alphen is entitled to certain compensation in the
event of termination of his employment (voluntary or otherwise) as a result of a
change in control in Cardero or a change in his responsibilities following a
change in control of Cardero, or if he is subject to constructive dismissal as
follows:

In the event of the occurrence of any
of the following events:

- a change in control of Cardero (being the acquisition of voting shares
  constituting 20% of the then outstanding voting shares by any person or group
  of persons acting in concert);
- the sale of all of Carderos assets where there is no intention to acquire
  new mineral projects or there is an intention to pursue a business other than
  the exploration and development of mineral projects;
- a merger of Cardero in which existing shareholders receive less than 50% of
  the share capital of the merged entity;
- a change in a majority of the incumbent directors of Cardero or the
  appointment of new directors constituting a majority of the then board of
  directors;
- an event of constructive dismissal occurs (including ceasing to be a
  director other than as a result of voluntary resignation, a demotion of his
  position, a diminishment of his responsibilities in a matter of
substance, a material reduction in his pay or benefits or his forced
relocation).

63

---

Mr. Van Alphen may, except in the case of constructive
dismissal, at any time during the period commencing 30 days after such event and
ending one year after such event, and in the case of constructive dismissal, at
any time within 120 days after the occurrence of such event, resign from
employment with Cardero. In such event, he is then entitled to receive an amount
equal to one and one-half times an amount equal to his then annual base salary
plus the amount of the last bonus paid to him (if any) plus the amount of
vacation pay otherwise payable for the next ensuing 12-month period. In
addition, he will be entitled to reimbursement of outplacement and financial
counseling services up to $50,000 and a continuation of his then existing
employee benefits for a period of one year after termination or until he sooner
finds alternate employment that provides reasonably comparable benefits.

2. ****Cardero has entered into an agreement dated July 1, 2006 with Lawrence
W. Talbot, pursuant to which Mr. Talbot will be employed by Cardero as its Vice
President and General Counsel on a part-time basis (approximately 34
hours/month) at a salary of $100,000/year. This amount was reduced by 20% by
agreement, effective April 1, 2013. Cardero paid Mr. Talbot $89,166 during the
fiscal year ended October 31, 2013 (2012  $100,000). Pursuant to such
employment agreement, Mr. Talbot is entitled to certain compensation in the
event of termination of his employment (voluntary or otherwise) as a result of a
change in control in Cardero or a change in his responsibilities following a
change in control of Cardero, or if he is subject to constructive dismissal as
follows:

In the event of the occurrence of any of the following events:

- a change in control of Cardero (being the acquisition of voting shares
  constituting 20% of the then outstanding voting shares by any person or group
  of persons acting in concert);
- the sale of all of Carderos assets where there is no intention to acquire
  new mineral projects or there is an intention to pursue a business other than
  the exploration and development of mineral projects;
- a merger of Cardero in which existing shareholders receive less than 50% of
  the share capital of the merged entity;
- a change in a majority of the incumbent directors of Cardero or the
  appointment of new directors constituting a majority of the then board of
  directors;
- an event of constructive dismissal occurs (including ceasing to be a
  director other than as a result of voluntary resignation, a demotion of his
  position, a diminishment of his responsibilities in a matter of substance, a
  material reduction in his pay or benefits or his forced relocation).

Mr. Talbot may, except in the case of constructive dismissal,
at any time during the period commencing 30 days after such event and ending one
year after such event, and in the case of constructive dismissal, at any time
within 90 days after the occurrence of such event, resign from employment with
Cardero. In such event, he is then entitled to receive an amount equal to his
then annual base salary plus the amount of the last bonus paid to him (if any)
plus the amount of vacation pay otherwise payable for the next ensuing 12-month
period. In addition, he will be entitled to a continuation of his then existing
employee benefits for a period of one year after termination or until he sooner
finds alternate employment that provides reasonably comparable benefits.

64

---

Director Compensation

Except as noted below, the Company had no arrangements,
standard or otherwise, pursuant to which Directors were compensated by the
Company for their services in their capacity as Directors, or for committee
participation, involvement in special assignments or for services as a
consultant or expert during the financial year ended October 31, 2013.

Except as noted below, none of the Companys current Directors
who are not also executive officers have received any manner of compensation for
services provided in their capacity as Directors, consultants or experts during
the Companys most recently completed financial year.

Effective June 1, 2008, the Compensation Committee of the Board
of Directors of Cardero (the Board) recommended, and the Board approved, the
payment of annual retainer and meeting fees to the independent Directors of
Cardero, in recognition of the fact that service as a director in an active
resource exploration company such as Cardero requires a significant commitment
of time and effort, as well as the assumption of increasing liability.
Independent Directors receive a monthly retainer fee of $2,000 ($24,000 per
annum), plus an additional fee of $500 per Board or Board committee meeting
attended in person or by conference telephone. There is no additional
compensation paid with respect to Board committee membership. In addition,
Cardero reimburses Directors for their out-of-pocket costs incurred in attending
Board or Board committee meetings.

Effective October 1, 2011, the Compensation Committee of the
Board recommended, and the Board approved, an increase in the monthly retainer
fee for the independent Directors from $2,000 to $4,000. No change was made to
the per meeting fee. The Company has and continues to reimburse Directors for
their out-of-pocket costs incurred in attending Board meetings.

During the financial year ended October 31, 2013, the persons
serving as Directors who were not also executive officers of Cardero received
the following Directors fees:

Name
    Fees earned
      ($)Leonard Harris
    32,000Stephan A. Fitch
    36,000Paul Matysek(1)
    32,000Ryan Dunfield(1)
    32,000


(1)      Messrs. Matysek and Dunfield
each resigned as a Director on August 8, 2013.

Directors who are not also executive officers of the Company
are also eligible to receive stock options. During the fiscal year ended October
31, 2013, the following stock options were granted to the Directors who are not
also executive officers of the Company:

Name
    Securities under
      options granted (#)
    Option exercise
      price ($)
    Option expiration
      dateLeonard Harris
    200,000 200,000
    0.20 0.11
    May 28, 2015 July 3, 2020Stephan A. Fitch
    200,000 200,000
    0.20 0.11
    May 28, 2015 July 3, 2020Paul Matysek
    200,000 200,000
    0.20 0.11
    May 28, 2015 July 3, 2020Ryan Dunfield
    200,000 200,000
    0.20 0.11
    May 28, 2015 July 3, 2020


65

---

The following table sets forth details of all exercises of
stock options during the financial year ended October 31, 2013 by the Directors
who are not also executive officers of Cardero, and the financial year-end value
of unexercised options held by Directors who are not also executive officers of
Cardero on an aggregated basis:

Name
    Securitiesacquired
      onexercise(#)
    Aggregatevalue
      realized($)
    Unexercised optionsat
      financial year-end(#)Exercisable/Unexercisable
    Value of unexercisedin-the-moneyoptions at financialyear-end($)Exercisable/UnexercisableLeonard Harris
    nil
    nil
    400,000/nil
    nil/nilStephan A. Fitch
    nil
    nil
    400,000/nil
    nil/nilPaul Matysek
    nil
    nil
    400,000/nil
    nil/nilRyan Dunfield
    nil
    nil
    400,000/nil
    nil/nil


6.C            
Board Practices

The Board is elected at each annual general meeting of the
shareholders. Each Director elected will hold office until the next annual
general meeting of Cardero or until his or her successor is elected or
appointed, unless his or her office is earlier vacated in accordance with the
Articles of Cardero, or with the provisions of the BCBCA. See Item 6.A 
Directors and Senior Management  for dates Directors were first elected to the
Board. No Director has a service contract with Cardero or any of its
subsidiaries providing for benefits upon termination of employment, except as
set forth above under the heading Item 6.A  Compensation  Management
Agreements.

Audit Committee

The following Directors are on the Audit Committee of the
Board:

Stephan Fitch (Chairman)Robert Van Doorn(1)Leonard Harris

1. ****Mr. Van Doorn was appointed to the Companys Audit Committee on April
4, 2014. During the fiscal year ended October 31, 2013, Mr. Dunfield was a
member of the Audit Committee until he resigned as a director of the Company on
August 8, 2013. Upon such resignation, a replacement for Mr. Dunfield on the
Audit Committee was not appointed. Consequently, the Companys audit committee
consisted of only Messrs. Harris and Fitch from August 8, 2013 until April 4,
2014. Accordingly, from August 8, 2013 until April 4, 2014, the Company did not
have an Audit Committee that complied with Sections 2.1 and 3.1(1) of National
Instrument 52-109 of the Canadian Securities Administrators. During this period,
the Company maintained an Audit Committee consisting of only 2 members instead
of the mandated 3 because the Board believed it was more important to have a
completely independent Audit Committee than to have a 3 member Audit Committee.
As of April 4, 2014, the Audit Committee again complies with Sections 2.1 and
3.1(1) of National Instrument 52-109 of the Canadian Securities Administrators.

At their first meeting following each annual general meeting,
the Directors must elect an Audit Committee, consisting of no fewer than three
Directors, for the ensuing year. Under Canadian Securities Administrators
National Instrument 52-110 Audit Committees (NI 52-110), all of such
directors must be independent (as determined under NI 52-110) and able to read
and understand fundamental financial statements and of whom one must be
financially sophisticated. Under NI 52-110, a director is independent if he or
she has no direct or indirect material relationship with the Company and, for
such purpose, material relationship is a relationship which could, in the view
of the Board, be reasonably expected to interfere with the exercise of a
directors independent judgement, provided that an individual who is, or has
been within the last three years, an employee or executive officer of the
Company is considered to have a material relationship with the Company.

66

---

Each member of the Audit Committee is independent and satisfies
the requirements set forth in Rule 10A-3 of the Exchange Act. Stephan Fitch is
the Chairman of the Audit Committee. The Board has determined that Stephan Fitch
is an audit committee financial expert within the meaning of the SECs rules.

Before a financial statement that is to be submitted to an
annual general meeting is considered by the Board, it must be submitted to the
Audit Committee for review, and the report of the Audit Committee on the
financial statements must be submitted to the Board thereafter.

On December 16, 2004, the Board adopted a replacement Audit
Committee Charter, a copy of which is attached as Exhibit 15.6 to this annual
report.

The overall purpose of the Audit Committee is to (a) ensure
that the management of Cardero has designed and implemented an effective system
of internal financial controls for reviewing and reporting on Carderos
financial statements; (b) oversee, review and report on the integrity of the
Carderos financial disclosure and reporting; (c) review Carderos compliance
with regulatory and statutory requirements as they relate to financial
statements, taxation matters and disclosure of material facts; and (d) be
directly responsible for (i) the selection of a firm of external auditors to be
proposed for election as the external auditors of Cardero, (ii) the oversight of
the work of the Carderos external auditors, and (iii) subject to the grant by
the shareholders of the authority to do so, if required, fixing the compensation
of the external auditors of Cardero.

Compensation Committee

The following Directors are on the Compensation Committee of
the Board:

Leonard Harris (Chairman)Stephan Fitch

The Compensation Committee was formed on June 24, 2004. Leonard
Harris serves as Chairman of the Compensation Committee. Each member of the
Compensation Committee is independent under the criteria established by NI
52-110.

The overall purpose of the Compensation Committee is to
implement and oversee human resources and compensation policies and best
practices for recommendation to the Board for approval and implementation. Among
other things, the Compensation Committee is responsible for assessing and
reporting to the Board, on an annual basis, on the performance of Carderos
Chief Executive Officer for the prior year and reviewing, on an annual basis,
the salary, bonus and other benefits, direct and indirect, of Carderos Chief
Executive Officer and making recommendations in respect thereof for approval by
the Board. The Compensation Committee also reviews, on an annual basis, the
proposed compensation for all other officers of Cardero after considering the
recommendations of the Chief Executive Officer, reviews any proposed amendments
to the Carderos incentive stock option plan and reviews and makes
recommendations to the Board concerning the Chief Executive Officers
recommendations for stock option grants. On December 16, 2004, the Board adopted
a Compensation Committee Charter, a copy of which is attached as Exhibit 15.7 to
this annual report.

6.D            
Employees

As of October 31, 2013, Cardero had 1 full-time and 4 part-time
employees, Cardero Coal had no employees and Cardero Management USA had 3
full-time employees and Cardero Ghana had 2 part-time employees. Cardero
Management USA subsequently terminated all of its employees on January 1, 2014.
As at October 31, 2013, the Company had no temporary employees, and did not hire
a significant number of temporary employees during the fiscal year ended October
31, 2013 as it did not have any active exploration work going on. The
significant reduction in both full and part-time employees is as a result of the
significant cost-cutting measures by the Company in response to severely
constrained financial circumstances of the Company and the consequent significant reduction in its activities. The
Company relies to a large degree upon consultants and contractors to carry on
many of its activities and, in particular, to supervise and carry out the work
programs on its mineral properties, including Carbon Creek. Given the current
economic climate for junior exploration companies and the difficulty in raising
new capital, it is unlikely that the Company will expand its activities and
therefore it is unlikely that it will choose to hire additional employees, and
may further reduce its staff.

67

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As of October 31, 2012, Cardero had 8 full-time and 6 part-time
employees, Cardero Coal had 10 full-time employees, Cardero Management USA had 5
full-time employees and Cardero Ghana had 2 part-time employees. During periods
of active exploration work, the Company typically hires a number of temporary
employees to work on its exploration programs. During the fiscal year ended
October 31, 2012, Cardero Coal hired an average of 22 temporary employees in
connection with its work program at Carbon Creek and Cardero Ghana hired an
average of 15 temporary employees in connection with its work program at Sheini.

As of October 31, 2011, Cardero had 16 full-time employees,
Cardero Coal had 14 full-time employees and Cardero Management USA had three
full-time employees.

None of the Companys employees are members of a labour union,
and the Company is not a party to any collective bargaining agreements.

6.E            
Share Ownership

The following table sets out the number and percentage of
Common Shares beneficially owned by the Companys Directors and members of its
administrative, supervisory or management bodies as of April 30, 2014.

Name
    Number of Common Shares
      beneficiallyowned(1)
    Percentage ofoutstanding
      CommonShares(2)Hendrik Van Alphen(3)
    3,354,119
    2.82Leonard Harris(4)
    534,694
    0.45Stephan A. Fitch(5)
    670,952
    0.56Robert Van Doorn
    Nil
    NilLawrence W. Talbot(6)
    582,877
    0.49Blaine Bailey(7)
    1,015,000
    0.86Keith Henderson(8)
    1,487,400
    1.25All Directors and executive officers as a group(9)
    7,645,042
    6.27


|(1) | Includes Common Shares issuable pursuant to stock options
      and common share purchase warrants that are exercisable on, or within 60
      days after, April 30, 2014.                                                                                                                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(2) | Percentages are based on 117,366,887 Common Shares
      outstanding as of April 30, 2014. Common shares subject to stock options
      and common share purchase warrants that are exercisable on, or within 60
      days after, April 30, 2014 are deemed outstanding for computing the percentage of the person
      holding such stock options and common share purchase warrants but are not
      deemed outstanding for computing the percentage of any other
  person.

68

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|(3) | Includes 1,450,000 stock options beneficially owned by
      Mr. Van Alphen.                                 
|--- | -------------------------------------------------------------------------------------------------------------
|    |                                                                                                              
|(4) | Includes 400,000 stock options beneficially owned by Mr.
      Harris.                                       
|    |                                                                                                              
|(5) | Includes 600,000 stock options beneficially owned by Mr.
      Fitch.                                        
|    |                                                                                                              
|(6) | Includes 350,000 stock options beneficially owned by Mr.
      Talbot.                                       
|    |                                                                                                              
|(7) | Includes 590,000 stock options beneficially owned by Mr.
      Bailey.                                       
|    |                                                                                                              
|(8) | Includes 1,200,000 stock options beneficially owned by
      Mr. Henderson.                                  
|    |                                                                                                              
|(9) | Includes 4,590,000 stock options beneficially owned by
      all Directors and executive officers as a group.

Information regarding stock options held by the Companys
Directors and members of its administrative, supervisory or management bodies,
including the number, exercise price and expiration date of such stock options
is set out in Item 6.B  Compensation.

Incentive Stock Option Plan

On September 13, 2012, shareholders of Cardero approved
Carderos 2012 Incentive Stock Option Plan (the Plan), a copy of which is
attached as Exhibit 4.1 to this annual report.

The Plan is intended as an incentive to enable the Company to
attract and retain qualified directors, officers, employees and consultants of
the Company and its affiliates, promote a proprietary interest in the Company
and its affiliates among its employees, officers, directors and consultants, and
stimulate the active interest of such persons in the development and financial
success of the Company and its affiliates.

The Plan is administered by the Compensation Committee of the
Board (the Compensation Committee). Options are granted by the Board based
upon the recommendations of the Compensation Committee. The following is a brief
description of the Plan, which description is qualified in its entirety by the
Plan:

| | 1. | Options may be granted to Employees, Senior Officers,
      Directors, Non-Employee Directors, Management Company Employees, and
      Consultants (all as defined in the Plan) of the Company and its affiliates
      who are, in the opinion of the Compensation Committee, in a position to
      contribute to the success of the Company or any of its
  affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 2. | The aggregate number of Common Shares that may be made
      issuable pursuant to options granted under the Plan at any particular time
      (together with those Common Shares which may be issued pursuant to any
      other security-based compensation plan(s) of the Company or any other
      option(s) for services granted by the Company at such time), unless
      otherwise approved by shareholders, may not exceed that number which is
      equal to 10% of the Common Shares issued and outstanding at such time. For
      greater certainty, in the event options are exercised, expire or otherwise
      terminate, the Company may (subject to such 10% limit) grant an equivalent
      number of new options under the Plan and the Company may (subject to such
      10% limit) continue to grant additional options under the Plan as its
      issued capital increases, even after the Plan has received regulatory
      acceptance and shareholder approval.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 3. | The number of Common Shares subject to each option will
      be determined by the Board at the time of grant (based upon the
      recommendations of the Compensation Committee), provided
  that:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

69

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| | a. | the maximum aggregate number of Common Shares reserved
      for issuance pursuant to options granted under the Plan and any other
      share compensation arrangements of the Company for issuance to insiders at
      any particular time may not exceed 10% of the issued Common Shares at such
      time; and                        
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                             
| | b. | the number of common shares issued to Insiders pursuant
      to the 2012 Plan (together with any Common Shares issued to insiders
      pursuant to any other share compensation arrangements of the Company)
      within a twelve (12) month period may not exceed ten (10%) of the issued
      and outstanding number of Common Shares.

| |    | Subject to the overall 10% limit described in 2 above,
      and the limitations on options to insiders as set forth above, there is no
      maximum limit on the number of options which may be granted to any one
      person.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                   
| | 4. | The exercise price of an option will be set by the
      Compensation Committee in its discretion, but such price shall be not less
      than the greater of:                                                                    
| |    |                                                                                                                                                                                                                                   
| |    | a.                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                   
| |    | b.                                                                                                                                                                                                                                

| | 5. | Options may be exercisable for a period of up to ten
      years from the date of grant. The Plan does not contain any specific
      provisions with respect to the causes of cessation of entitlement of any
      optionee to exercise his option, provided, however, that the Board may, at
      the time of grant, determine that an option will terminate within a fixed
      period (which is shorter than the option term) upon the ceasing of the
      optionee to be an eligible optionee (for whatever reason) or upon the
      death of the optionee, provided that, in the case of the death of the
      optionee, an option will be exercisable only within one year from the date
      of the optionees death.                                                       
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 6. | Notwithstanding the expiry date of an option set by the
      Board, the expiry date will be adjusted, without being subject to the
      discretion of the Board or the Compensation Committee, to take into
      account any blackout period imposed on the optionee by the Company. If the
      expiry date falls within a blackout period, then the expiry date will be
      the close of business on the tenth business day after the end of such
      blackout period. Alternatively, if the expiry date falls within two
      business days after the end of such a blackout period, then the expiry
      date will be the difference between 10 business days reduced by the number
      of business days between the expiry date and the end of such blackout
      period.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 7. | The Plan does not provide for any specific vesting
      periods. The Compensation Committee may, at the time of grant of an
      option, determine when that option will become exercisable and any
      applicable vesting periods, and may determine that that option will be
      exercisable in installments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 8. | On the occurrence of a takeover bid, issuer bid or going
      private transaction, the Board has the right to accelerate the date on
      which any option becomes exercisable and may, if permitted by applicable
      legislation, permit an option to be exercised conditional upon the
      tendering of the Common Shares thereby issued to such bid and the
      completion of, and consequent taking up of such Common Shares under, such
      bid or going private transaction.                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 9. | Options are non-assignable, and may, during his/her
      lifetime, only be exercised by the optionee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

70

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| | 10. | The exercise price per optioned share under an option may
      be reduced, at the discretion of the Board (upon the recommendation of the
      Compensation Committee), if:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 11. | The present policy of the Board is not to provide any
      financial assistance to any optionee in connection with the exercise of
      any option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 12. | The present policy of the Board is not to transform an
      option granted under the Plan into a stock appreciation right.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 13. | If there is any change in the number of Common Shares
      outstanding through any declaration of a stock dividend or any
      consolidation, subdivision or reclassification of the Common Shares, the
      number of shares available under the Plan, the shares subject to any
      granted stock option and the exercise price thereof will be adjusted
      proportionately, subject to any approval required by the TSE. If the
      Company amalgamates, merges or enters into a plan of arrangement with or
      into another corporation, and the Company is not the surviving or
      acquiring corporation, then, on any subsequent exercise of such option,
      the optionee will receive such securities, property or cash which the
      optionee would have received upon such reorganization if the optionee had
      exercised his or her option immediately prior to the record
date.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 14. | The Plan provides that, subject to the policies, rules
      and regulations of any lawful authority having jurisdiction (including the
      TSE), the Board may, at any time, without further action or approval by
      the shareholders of the Company, amend the Plan or any option granted
      under the Plan in such respects as it may consider advisable and, without
      limiting the generality of the foregoing, it may do so
  to:                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| | a. | ensure that the options granted under the Plan will
      comply with any provisions respecting stock options in tax and other laws
      in force in any country or jurisdiction of which a optionee to whom an
      option has been granted may from time to time be resident or a
    citizen;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                   
| | b. | make amendments of an administrative nature;                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                   
| | c. | correct any defect, supply any omission or reconcile any
      inconsistency in the Plan, any option or option agreement;                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                   
| | d. | change vesting provisions of an option or the
  Plan;                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                   
| | e. | change termination provisions of an option provided that
      the expiry date does not extend beyond the original expiry date;                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                   
| | f. | add or modify a cashless exercise feature providing for
      payment in cash or securities upon the exercise of options;                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                   
| | g. | make any amendments required to comply with applicable
      laws or the requirements of the TSE or any regulatory body or stock
      exchange with jurisdiction over the Company;                                                                                                               

71

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| | h. | add or change provisions relating to any form of
      financial assistance provided by the Company to participants under the
      Plan that would facilitate the purchase of securities under the
    Plan;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

provided that shareholder approval
shall be obtained for any amendment that results in:

| | i. | an increase in the Common Shares issuable under options
      granted pursuant to the Plan;                           
| | -- | ----------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                       
| | j. | a change in the persons who qualify as participants
      eligible to participate under the Plan;                     
| |    |                                                                                                                       
| | k. | a reduction in the exercise price of an option;                                                                       
| |    |                                                                                                                       
| | l. | the cancellation and reissuance of any option;                                                                        
| |    |                                                                                                                       
| | m. | the extension of the term of an option;                                                                               
| |    |                                                                                                                       
| | n. | a change in the insider participation limit contained in
      subsection 5.1(b) of the Plan;                         
| |    |                                                                                                                       
| | o. | options becoming transferable or assignable other than
      for the purposes described in section 10 of the Plan; and
| |    |                                                                                                                       
| | p. | a change in the amendment provisions contained in section
      16 of the Plan.                                       

ITEM
7.             MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A            
Major Shareholders

As of April 30, 2014, to the knowledge of management, the
following shareholders are the only persons who beneficially own 5% or more of
the issued and outstanding Common Shares:

Name
    Number of Common
      Shares beneficially owned
    Percentage ofoutstanding
      CommonShares(1)Robert C. Kopple
    66,919,227 (2)
    37.66%


|(1) | Percentage is based on 117,366,887 Common Shares
      outstanding as of April 30, 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(2) | According to Amendment No. 1 to Schedule 13D filed with
      the SEC on December 17, 2013 by Robert C. Kopple (Kopple Amendment No.
      1), Robert C. Kopple, directly or indirectly through E.L. II Properties
      Trust Dated 7/1/1983 and Kopple Family Partnership, L.P., beneficially
      owns 6,601,095 Common Shares, a vested incentive stock option to purchase
      3,600,000 Common Shares and share purchase warrants to purchase 56,718,132
      Common Shares. Until April 4, 2014, the warrants were exercisable only to
      the extent that the Common Shares beneficially owned by Robert C. Kopple
      directly and through affiliates do not exceed 19.99% of the then issued
      and outstanding Common Shares. On April 4, 2014, the shareholders of the
      Company approved a resolution permitting Mr. Kopple, and his associates
      and affiliates, to exceed the 19.99% threshold and, accordingly, all the
      warrants and incentive stock options held by Mr. Kopple and his associates
      and affiliates may now be exercised in full.

Based upon Kopple Amendment No. 1 filed with the SEC on
December 17, 2013, the following changes in the ownership of Common Shares by
Robert C., Kopple have taken place since the Schedule 13D dated August 19, 2013
(Schedule 13D) was filed with the SEC on August 19, 2013:

Name
    August 8, 2013(Schedule 13D)
    December 17, 2013(Amendment
      No. 1)Number(1)
    %(2)
    Number(3)
    %(2)Robert C. Kopple
    35,368,289
    19.99
    66,919,227
    19.99


72

---

|(1) | Number based upon beneficial ownership of 3,409,223
      Common Shares, a vested incentive stock option to purchase 3,600,000
      Common Shares and share purchase warrants to purchase 28,359,066 Common
      Shares.                                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                    
|(2) | Until April 4, 2014, the warrants were exercisable only
      to the extent that the Common Shares beneficially owned by Robert C.
      Kopple directly and through affiliates do not exceed 19.99% of the then
      issued and outstanding Common Shares.       
|    |                                                                                                                                                                                                                                                                    
|(3) | Number based upon beneficial ownership of 6,601,095
      Common Shares, a vested incentive stock option to purchase 3,600,000
      Common Shares and share purchase warrants to purchase 56,718,132 Common
      Shares, and reflects the following
acquisitions:

| | - | 28,359,066 warrants to purchase
      Common Shares on December 5
| | - | -----------------------------------------------------------------
| | - | 188,600 Common Shares on October
      17, 2013                  
| | - | 414,375 Common Shares on December
      9, 2013                  
| | - | 106,000 Common Shares on December
      10, 2013                 
| | - | 152,710 Common Shares on December
      11, 2013                 
| | - | 194,500 Common Shares on December
      12, 2013                 

None of the shareholders disclosed above have any voting rights
with respect to their respective Common Shares that are different from any other
holder of Common Shares. All of the Common Shares, both issued and unissued, are
shares of the same class and rank equally as to dividends, voting powers and
participation of powers. Accordingly, there are no special voting powers held by
the Companys major shareholders.

As of April 30, 2014, there were 117,366,887 Common Shares
issued and outstanding. Carderos shareholder list as provided by Computershare
Investor Services, Inc., Carderos registrar and transfer agent, indicates that
Cardero had 102 registered shareholders owning Common Shares, of which 43
(42.16%) of these registered shareholders, holding approximately 16,929,055
(14.42%) Common Shares, are residents of the United States, 54 (52.94%) of these
registered shareholders, holding approximately 100,210,702 (85.38%) Common
Shares, are residents of Canada, and 5 (4.90%) of these registered shareholders,
holding approximately 227,130 (0.19%) Common Shares, are residents of
jurisdictions other than the United States and Canada.

Control by Foreign Government or Other Persons

To the knowledge of management, the Company is not directly or
indirectly owned or controlled by another corporation, any foreign government,
or any other natural or legal person, severally or jointly.

Change of Control

As of the date of this annual report, there are no arrangements
known to the Company which may at a subsequent date result in a change of
control of the Company.

7.B            
Related Party Transactions

Except as noted below, there have been no transactions or loans
since November 1, 2012 which are material to the Company or a related party, or
are unusual in their nature or conditions, and have been entered into, or are
proposed to be entered into, between the Company and (a) enterprises that
directly or indirectly through one or more intermediaries, control or are
controlled by, or are under common control with, the Company; (b) associates;
(c) individuals owning, directly or indirectly, an interest in the voting power
of the Company that gives them significant influence over the Company, and close
members of any such individuals family; (d) key management personnel, that is,
those persons having authority and responsibility for planning, directing and
controlling the activities of the Company, including directors and senior
management of the Company and close members of such individuals families; and
(e) enterprises in which a substantial interest in the voting power is owned,
directly or indirectly, by any person described in (c) or (d) or over which such
a person is able to exercise significant influence. This includes enterprises
owned by directors or major shareholders of the Company and enterprises that
have a member of key management in common with the Company. Close members of an individuals family are those that
may be expected to influence, or be influenced by, that person in their dealings
with the Company. An associate is an unconsolidated enterprise in which the
Company has a significant influence or which has significant influence over the
Company. Significant influence over an enterprise is the power to participate in
the financial and operating policy decisions of the enterprise but is less than
control over those policies. Shareholders beneficially owning a 10% interest in
the voting power of the Company are presumed to have a significant influence on
the Company.

73

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|1. | The Company leases office space and provides
      administrative services to the following companies, each of which, at some
      point during the fiscal year ended October 31, 2013, had one or more
      members of key management in common with the Company and/or in which the
      Company held more than 10%: Wealth Minerals Ltd. (Wealth), Indico
      Resources Inc. (Indico), Abzu Gold Inc. (Abzu), Balmoral Resources
      Ltd. (Balmoral), Corvus Gold Inc. (Corvus) and Lawrence W. Talbot Law
      Corporation (LWTLC).                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|2. | Amounts have been advanced to, or on behalf of, or
      amounts are otherwise due from, several companies, each of which, at some
      point during the fiscal year ended October 31, 2013, had one or more
      members of key management in common with the Company and/or in which the
      Company held more than 10% of the Companys outstanding shares. Other than
      with respect to Wealth and Abzu, the amounts due relate to charges for the
      lease of office space and the provision of administrative services as
      outlined in item 1 above. With respect to Wealth and Abzu, the amounts due
      relate to the lease of office space and the provision of administrative
      services as outlined in item 1 above, together with working capital loans.
      The largest amounts outstanding during the fiscal year ended October 31,
      2013 and the balances as at October 31, 2013 (the latest practicable date
      for which amounts are available) are as
follows:

| |          |   | Largest     |  |   |             | 
| | -------- | - | ----------- |  | - | ----------- | 
| |          |   | Balance     |  |   |             | 
| |          |   | Outstanding |  |   |             | 
| |          |   | Between     |  |   |             | 
| |          |   | November 1, |  |   |             | 
| |          |   | 2012 and    |  |   | Balance at  | 
| |          |   | October 31, |  |   | October 31, | 
| |          |   | 2013        |  |   | 2013        | 
| | Wealth   | $ | 541,389     |  | $ | 520,107     | 
| | Indico   | $ | 256,787     |  | $ | 251,411     | 
| | Abzu     | $ | 234,953     |  | $ | 155         | 
| | Balmoral | $ | 61,144      |  | $ | 678         | 
| | Corvus   | $ | 28,992      |  | $ | 373         | 
| | LWTLC    | $ | 27,156      |  | $ | 733         | 
| |          |   |             |  |   |             | 
| |          | $ | 1,150,421   |  | $ | 773,457     | 

|   | The Company presents amounts receivable from Wealth and
      Indico in the October 31, 2013 financial statements as $42,973 and $53,172
      respectively, which are net of allowances of $477,134 and $198,239
      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3. | On December 20, 2012, Cardero closed the first tranche of
      a non-brokered private placement of 7,966,794 Common Shares at a price of
      $0.45 each. Michael Hunter, President, Chief Executive Officer and
      Director of Cardero purchased 67,222 Common Shares, Lawrence W. Talbot,
      Vice President and General Counsel of Cardero, purchased 97,777 Common
      Shares, the spouse of Blaine Bailey, the Chief Financial Officer of
      Cardero, purchased 48,888 Common Shares, Angus
Christie, Chief Operating Officer of Cardero, purchased 42,777
      Common Shares and Leonard Harris, Director of Cardero, purchased 44,444
      Common Shares. Such purchases were upon the identical terms and conditions
      as the other subscribers in the placement. A copy of the form of
      subscription agreement used in connection with this placement is attached
  as Exhibit 4.XX.

74

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|4. | On April 22, 2013, the Company completed the placement of
      the Luxor Notes - See Item 4.A History and Development of the Company.
      At the time of the placement, Luxor Capital Group, LP and affiliated
      entities held approximately 9.4% of the outstanding Common Shares. As
      required by the NYSE MKT, the placement of the Luxor Notes to the Luxor
      Lenders was approved by both the Companys Audit Committee and full Board.
      The Luxor Notes were repaid in full on August 9, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|5. | On December 5, 2013 the Company completed the
      implementation of the Credit Line  See Item 4.A History and Development
      of the Company. At the time of the implementation of the Credit Line, the
      Kopple Lenders (who provided the Credit Line), together with Mr. Kopple,
      beneficially owned Common Shares which, together with certain incentive
      stock options and warrants to purchase Common Shares, if exercised, would
      result in the Kopple Lenders and Mr. Kopple holding 19.99% of the then
      issued Common Shares. A copy of the Facility Letter relating to the Credit
      Line (as amended) and of the form of warrant certificate, together with
      the form of subscription agreement and secured note, and copies of the
      general security agreement, share pledge agreement, guarantee of Cardero
      Coal and form of warrant certificate used in connection with the placement
      of the Kopple Notes, which are relevant to the Credit Line, are attached
      as Exhibits 4.4  4.11.

7.C            
Interests of Experts and Counsel

Not applicable.

ITEM
8.            
FINANCIAL INFORMATION

8.A            
Consolidated Statements and Other Financial Information

See the Companys audited consolidated financial statements as
of October 31, 2013 and 2012 and for the financial years ended October 31, 2013
and 2012, together with the notes thereto, attached to this annual report.

The Company is not aware of any current or pending material
legal or arbitration proceeding to which it is or is likely to be a party or of
which any of its properties are or are likely to be subject, except as set forth
below:

|1. | On November 15, 2012, Carbon Mountain Drilling and Water
      Services Ltd. of Prince George, British Columbia (Carbon Mountain),
      filed a notice of civil claim in the Supreme Court of British Columbia
      against Cardero Coal seeking payment for certain drilling services
      rendered in 2011 in the amount of $770,393.48 plus damages for breach of
      contract and interest. On January 10, 2013 Cardero Coal filed a response
      to the civil claim disputing liability and the amount claimed and a
      counterclaim seeking damages for negligence, breach of contract and other
      relief. Carbon Mountain filed an answer to the counterclaim on May 13,
      2013. No documents have been exchanged and no discoveries have been held.
      A trial date has not been set.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2. | On October 13, 2013, JDS Energy & Mining Inc. of
      Kelowna, British Columbia filed a notice of civil claim in the Supreme
      Court of British Columbia against Cardero Coal seeking payment for certain
      project management and consulting services rendered in 2013 in the amount
      of $262,500.00 plus interest. Cardero Coal filed a response to the civil
      claim disputing liability and the amount claimed. On January 6, 2014, the
      parties entered into a settlement agreement, and the matter has now
      settled and the action has been dismissed by consent without costs to
      either party.                                                                                                                                                                             

75

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|3. | On November 4, 2013, Geodrill Limited of Isle of Man,
      United Kingdom filed a notice of civil claim in the Supreme Court of
      British Columbia against Cardero seeking payment for certain drilling
      services rendered in 2012 in the amount of USD 449,904.98 plus interest.
      On November 5, 2013 the parties entered into a settlement agreement, and
      the matter has now settled and the action has been dismissed by consent
      without costs to either party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4. | On February 4, 2014, Gowling Lafleur Henderson LLP of
      Vancouver, BC filed a notice of civil claim in the Supreme Court of
      British Columbia against the Company seeking payment for certain legal
      fees and disbursements in respect of legal services rendered in the amount
      of $732,143.46 plus interest and costs. On February 11, 2014, Gowling
      Lafleur Henderson LLP obtained a Garnishing Order Before Judgement and
      served the same on the Companys banker, resulting in the sum of
      approximately $109,000 in certain of the Companys bank accounts (a
      combination of Canadian and United States currencies) being paid into
      court and therefore unavailable to the Company. On April 11, 2014, the
      Company applied to have the Garnishing Order set aside, and a decision on
      such application was reserved by the Court and has not yet been released.
      If the Garnishing Order is not set aside these funds will remain in court
      and unavailable to the Company until such time as the taxation of the
      Gowling Lafleur Henderson LLP accounts in question has been completed and
      may be paid out to Gowling Lafleur Henderson LLP depending upon the
      outcome of the taxation hearing. The taxation hearing is presently set for
      July 24, 2014, but may be delayed depending upon the availability of
      parties or for other reasons.

The Company is not aware of any material proceeding in which
any director, senior manager or affiliate is either a party adverse to Cardero
or its subsidiaries or has a material interest adverse to Cardero or its
subsidiaries.

The Company has not declared or paid any cash dividends on the
Common Shares. The Company has no present intention of paying any dividends, as
it anticipates that all available funds will be invested to finance the growth
of its business. The Directors of Cardero will determine if and when dividends
should be declared and paid in the future, based on the Companys financial
position at the relevant time.

8.B            
Significant Changes

Subsequent to October 31, 2013 the following significant
changes have occurred:

|a) | On November 8, 2013, 400,000 stock options were exercised
      at a price of $0.11 for proceeds of $44,000, and 450,000 stock options at
      a price of $0.20 expired.                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                      
|b) | On November 9, 2013, 400,000 stock options at a price of
      $1.10, 100,000 stock options at a price of $0.78 and 100,000 stock options
      at a price of $0.11 expired.                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                      
|c) | On November 26, 2013, the Companys Common Shares were
      delisted from the NYSE MKT.                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                      
|d) | On December 5, 2013, the Company completed the
      implementation of the Credit Line  see Item 4.A History and Development
      of the Company.                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                      
|e) | On December 12, 2013 the Company completed debt
      settlement with a number of arms length creditors. 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                      
|f) | On December 19, 2013, 114,000 share purchase warrants at
      a price of $0.45 expired.                                                                                                                                                                                                                                                                                                             

76

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|g) | On December 28, 2013, 351,648 share purchase warrants at
      a price of $0.55 expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|h) | On January 7, 2014, 75,000 stock options were exercised
      at a price of $0.11 for proceeds of $8,250.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|i) | On January 26, 2014, 225,000 stock options at a price of
      $1.51 expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|j) | On January 27, 2014 136,000 stock options were exercised
      at a price of $0.11 for proceeds of $14,850.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|k) | On February 7, 2014, the Company issued 2,036,000 stock
      options at a price of $0.18 with a term of 2 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|l) | On February 27, 2014, 100,000 stock options were
      exercised at a price of $0.11 for proceeds of $11,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|m) | On March 4, 2014 the Company received its British
      Columbia Mineral Exploration Tax Credit refund in the amount of $3,734,023
      plus interest of $40,628 for a total of $3,774,651.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|n) | On March 5, 2014 the Company paid USD 3,906,794
      (representing the USD 3,700,000 principle amount plus USD 206,794 in
      interest, of which USD 3,360,957 was paid in cash and USD 545,838 was paid
      from the Credit Line) towards the Kopple Note due on or before March 14,
      2014.                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|o) | On April 4, 2014, the shareholders of the Company
      approved certain matters in connection with Mr. Kopple and his associates
      and affiliates, namely: (i) the issuance of the additional 10,058,330
      December Kopple Warrants, (ii) the reduction of the exercise price of the
      December Kopple Warrants to $0.10, (iii) and (iv) the acquisition by the
      Kopple Lenders of a greater than 19.99% interest in the Company through
      the exercise of the August Kopple Warrants, the December Kopple Warrants,
      the exercise by Mr. Kopple of 3,600,000 incentive stock options held by
      him in his role as a consultant to the Company, or any combination
      thereof.

ITEM
9.             THE
OFFER AND LISTING

9.A            
Offer and Listing Details

The following table discloses the annual high and low sales
prices in Canadian dollars for the Common Shares for the five most recent
financial years as traded on the TSE, as available at http://finance.yahoo.com/:

Year EndedOctober 31
    High($)
    Low($)2013
    0.57
    0.052012
    1.56
    0.532011
    2.35
    0.752010
    1.66
    1.062009
    2.15
    0.88


The following table discloses the high and low sales prices in
Canadian dollars for the Common Shares for each quarterly period within the two
most recent financial years and any subsequent quarterly period as traded on the
TSE, as available at http://finance.yahoo.com/:

77

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Quarter Ended
    High ($)
    Low ($)April 30, 2014
    0.21
    0.10January 31, 2014
    0.27
    0.12October 31, 2013
    0.23
    0.07July 31, 2013
    0.21
    0.05April 30, 2013
    0.45
    0.17January 31, 2013
    0.57
    0.39October 31, 2012
    0.90
    0.53July 31, 2012
    1.00
    0.66April 30, 2012
    1.51
    0.83January 31, 2012
    1.56
    0.89


The following table discloses the monthly high and low sales
prices in Canadian dollars for the Common Shares for the most recent six months
as traded on the TSE, as available at http://finance.yahoo.com/:

Month
    High ($)
    Low ($)April 2014
    0.12
    0.10March 2014
    0.16
    0.10February 2014
    0.21
    0.14January 2014
    0.27
    0.17December 2013
    0.24
    0.14November 2013
    0.17
    0.12October 2013
    0.17
    0.11September 2013
    0.18
    0.13August 2013
    0.23
    0.07


The following table discloses the annual high and low sales
prices in U.S. dollars for the Common Shares for the five most recent financial
years as traded on the NYSE MKT, as available at http://finance.yahoo.com/:

Year Ended October 31
    High (US$)
    Low (US$)2013
    0.577
    0.05062012
    1.56
    0.542011
    2.37
    0.742010
    1.62
    1.002009
    1.73
    0.73


The following table discloses the high and low sales prices in
U.S. dollars for the Common Shares for each quarterly period within the two most
recent financial years and any subsequent quarterly period as traded on the NYSE
MKT and the OTCQB(1) , as available at http://finance.yahoo.com/:

78

---

Quarter Ended
    High (US$)
    Low (US$)April 2014
    0.17
    0.08January 31, 2014
    0.25
    0.10October 31, 2013
    0.22
    0.06July 31, 2013
    0.22
    0.0506April 30, 2013
    0.45
    0.1515January 31, 2013
    0.58
    0.39October 31, 2012
    0.90
    0.54July 31, 2012
    1.00
    0.65April 30, 2012
    1.52
    0.84January 31, 2012
    1.56
    0.86


1. ****On November 25, 2013, the Common Shares were suspended from trading
from the NYSE MKT as a consequence of the Company failing to maintain minimum
listing standards mandated by the NYSE MKT, and were subsequently delisted. Upon
such delisting, the Common Shares became quoted in the US on the OTCQB under the
symbol CDYCF.

The following table discloses the monthly high and low sales
prices in U.S. dollars for the Common Shares for the most recent four months for
which the Common Shares traded on the NYSE MKT(1) , as available at
http://www.stockwatch.com/:

Month
    High (US$)
    Low (US$)November 2013
    0.166
    0.106October 2013
    0.17
    0.109September 2013
    0.1799
    0.1236August 2013
    0.2246
    0.0634


1. ****On November 25, 2013, the Common Shares were suspended from trading
from the NYSE MKT as a consequence of the Company failing to maintain minimum
listing standards mandated by the NYSE MKT, and were subsequently delisted. Upon
such delisting, the Common Shares became quoted in the US on the OTCQB.

The following table discloses the monthly high and low sales
prices in U.S. dollars for the Common Shares for the most recent three months as
traded on the OTCQB(1), as available at http://www.stockwatch.com/:

Month
    High (US$)
    Low (US$)April 2014
    0.114
    0.0831March 2014
    0.1492
    0.0931February, 2014
    0.1716
    0.1308January 2014
    0.2494
    0.16December 2013
    0.2275
    0.1242November 2013
    0.1383
    0.104


1.****
On November 25, 2013, the Common Shares were suspended from trading from the
NYSE MKT as a consequence of the Company failing to maintain minimum listing
standards mandated by the NYSE MKT, and were subsequently delisted. Upon such
delisting, the Common Shares became quoted in the US on the OTCQB.

79

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9.B            
Plan of Distribution

Not applicable.

9.C            
Markets

The Common Shares are listed on the TSE, under the trading
symbol CDU. Until November 25, 2013, the Common Shares were listed on the NYSE
MKT under the trading symbol CDY. Subsequent to November 25, 2013, the Common
Shares have been quoted on the OTCQB under the symbol CDYCF. The Common Shares
are also quoted on the Frankfurt Stock Exchange under the symbol CR5.

9.D            
Selling Shareholders

Not applicable.

9.E            
Dilution

Not applicable.

9.F            
Expenses of the Issue

Not applicable.

ITEM
10.           ADDITIONAL
INFORMATION

10.AShare
Capital

Not applicable.

10.B           Memorandum
and Articles of Association

On March 29, 2004, the Company Act(British Columbia)
(the Company Act) was replaced by the BCBCA. Under the BCBCA, every company
incorporated under the Company Act was required to complete a mandatory
transition rollover under the BCBCA to substitute a Notice of Articles for its
Memorandum within two years of March 29, 2004. The only information contained in
the Notice of Articles of a company is the recognition (incorporation) date of
the company, the authorized share structure of the company, the name and
incorporation number of the company, the address of the registered and records
office of the company, and the names and addresses of the directors of the
company.

Cardero was transitioned under the BCBCA on January 13, 2005,
and is now governed by that statute.

As a pre-existing company under the Company Act, Cardero was
subject to provisions contained in the BCBCA known as the Pre-Existing Company
Provisions. The Pre-Existing Company Provisions are statutory provisions
intended to preserve certain provisions of the Company Act to companies
incorporated under the Company Act. Under the BCBCA, Cardero had the option to
replace the Pre-Existing Company Provisions with a new form of Articles to take
advantage of the benefits of the BCBCA, provided the shareholders approved the
change.

As a public company, the only significant provision of the
Pre-Existing Company Provisions that applied to Cardero is the requirement under
the Company Act that three-quarters of the votes cast at a general meeting must
vote in favour of any proposed special resolution in order for the special
resolution to be passed. Under the BCBCA, the level of approval for special
resolutions may be reduced to two-thirds of the votes cast at a general meeting, which is consistent with the corporate
statutes in other Canadian jurisdictions. Management considered the two-thirds
approval threshold to be appropriate for fundamental changes requiring approval
by special resolution.

80

---

Accordingly, at the annual meeting held on April 15, 2005, the
shareholders approved a special resolution to alter the Notice of Articles to
remove the application of the Pre-Existing Company Provisions.

In addition to deleting the Pre-Existing Company Provisions,
the Board was also of the view that it would be in the best interests of Cardero
to adopt a new set of Articles (the New Articles) to govern the affairs of
Cardero in substitution for the original articles adopted under the Company Act
and reflecting the increased flexibility available to companies under the BCBCA.
The New Articles reflect the flexibility and efficiency permitted under the
BCBCA, while maintaining a significant portion of the existing governing
provisions. As a result, most of the changes in the New Articles are minor in
nature, and are not substantive changes. On April 22, 2005, Cardero filed a new
Notice of Articles, reflecting the adoption by the shareholders of the New
Articles. A copy of the current Notice of Articles is attached to this annual
report as Exhibit 1.1 and a copy of the New Articles (as amended effective March
22, 2011) is attached to this annual report as Exhibit 1.2.

There are no objects or purposes of Cardero found in the New
Articles, nor are there any restrictions on Cardero carrying on any business or
exercising any powers (subject to compliance with any applicable requirements of
the BCBCA). Rather, pursuant to the BCBCA, Cardero has all the capacity and the
rights, powers and privileges of an individual of full capacity.

The New Articles, in conjunction with and subject to the
provisions of the BCBCA, contain provisions with respect to the rights and
restrictions of the classes of shares in the capital of Cardero, the rights of
shareholders, the procedures for the alteration of the rights and privileges of
shareholders, the powers and duties of Directors, the power of the Directors to
borrow, the ability of the Directors to bind Cardero, the calling and holding
meetings of shareholders, and the rights of shareholders in the event of
liquidation of the assets of Cardero.

The authorized capital of Cardero consists of an unlimited
number of Common Shares. The Common Shares, as a class, have attached thereto
the following rights, privileges, restrictions and conditions:

- Voting: Except for meetings at which only holders of another
  specified class or series of shares are entitled to vote separately as a class
  or series, each holder of a Common Share is entitled to receive notice of and
  to attend all meetings of the shareholders of Cardero and to one vote in
  respect of each Common Share held at all such meetings.
- Dividends: Subject to the rights of any other class of shares
  ranking senior to the Common Shares, the holders of the Common Shares are
  entitled to receive and participate rateably in any dividends if, as and when
  declared by the Board.
- Liquidation, Dissolution or Winding-Up: Subject to the rights of any
  other class of shares ranking senior to the Common Shares, in the event of the
  liquidation, dissolution or winding-up of Cardero or other distribution of the
  assets of Cardero among its shareholders for the purposes of winding up its
  affairs, the holders of the Common Shares shall participate rateably in the
  distribution of the assets of Cardero.

No Common Shares have been or may be issued subject to call or
assessment. There are no pre-emptive or conversion rights attached to the Common
Shares, and there are no provisions for purchase or cancellation, surrender, or
any sinking fund or purchase fund.

81

---

Provisions as to the modification, amendment or variation of
the rights of shareholders, or the rights and restrictions attaching to the
Common Shares, are contained in the New Articles and the BCBCA. Generally,
substantive changes to the rights of holders of Common Shares, including to the
authorized capital of the Company, require the approval by the holders of the
affected shares by an ordinary resolution (requires approval by a simple
majority of the shares voting on the resolution) (Ordinary Resolution).
Cardero may, by a resolution of the Board alone, subdivide or consolidate all or
any of its unissued or issued Common Shares.

There are no restrictions on the transferability of the Common
Shares contained in the New Articles. Requirements as to the applicable
documentation to be submitted in connection with any transfer are set out in the
New Articles. There are no provisions in the New Articles discriminating against
any existing or prospective holder of Common Shares as a result of any such
holder(s) owning a substantial amount of Common Shares. There are no provisions
in the New Articles that would have the effect of delaying, deferring or
preventing a change in control of Cardero and that would operate only with
respect to an extraordinary corporate transaction involving Cardero such as a
merger, reorganization, tender offer, sale or transfer of all or substantially
all of its assets or liquidation.

With respect to certain matters concerning Directors, the New
Articles provide as follows:

| | (a) | A Director who holds a disclosable interest (as defined
      in the BCBCA  see below) in a contract or transaction into which Cardero
      has entered or proposes to enter is not entitled to vote on any resolution
      of the Directors to approve that contract or transaction, unless all of
      the Directors have a disclosable interest, in which case any or all of the
      Directors may vote on such resolution.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (b) | There is no requirement for an independent quorum of
      Directors to be present in order for the Directors to be able to vote
      compensation to themselves or any members of their body.                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (c) | Cardero, if authorized by the Directors, may:                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | There are no restrictions in the New Articles on the
      powers of the Directors as set out above (save with respect to the ability
      of any Directors with a disclosable interest to vote to approve any such
      transactions). Such provisions may be varied by an Ordinary Resolution of
      the shareholders.                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (d) | There is no provision in the New Articles for the
      retirement or non-retirement of Directors pursuant to any age limit
      requirement.                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (e) | There is no requirement for a Director to hold any Common
      Shares in order to be qualified to be elected or to act as a
    Director.                                                                                                                                                                                                                                                                                            

82

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The BCBCA provides that a director holds a disclosable
interest in a contract or transaction if:

| | the contract or transaction is material to the
      company,                                 
|- | ----------------------------------------------------------------------------------------------
|  |                                                                                               
| | the company has entered, or proposes to enter, into the
      contract or the transaction, and
|  |                                                                                               
| | either of the following applies to the
director:                                              
|  |                                                                                               
|  | o                                                                                             
|  |                                                                                               
|  | o                                                                                             

However, a director does not hold a disclosable interest in a
contract or transaction merely because:

| | the contract or transaction is an arrangement by way of
      security granted by the company for money loaned to, or obligations
      undertaken by, the director, or a person in whom the director has a
      material interest, for the benefit of the company or an affiliate of the
      company,
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                          
| | the contract or transaction relates to an indemnity of
      the director by the company or insurance for the benefit of the director,                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                          
| | the contract or transaction relates to the remuneration
      of the director in that persons capacity as director, officer, employee
      or agent of the company or of an affiliate of the company,                                                                                                  
|  |                                                                                                                                                                                                                                                                                                          
| | the contract or transaction relates to a loan to the
      company, and the director, or a person in whom the director has a material
      interest, is or is to be a guarantor of some or all of the loan, or                                                                                          
|  |                                                                                                                                                                                                                                                                                                          
| | the contract or transaction has been or will be made with
      or for the benefit of a corporation that is affiliated with the company
      and the director is also a director of that corporation or an affiliate of
      that corporation.                                                         

The Directors may call meetings of shareholders of Cardero at
any time. There are no provisions in the New Articles permitting a meeting of
shareholders to be called by shareholders or by a court of competent
jurisdiction, but the BCBCA contains provisions permitting the holders of not
less than 5% of the Common Shares to requisition a meeting of the shareholders
and authorizing one or more shareholders holding at least 2.5% of the Common
Shares to call a meeting if the Directors do not do so. Notice of the time, date
and location of a general meeting, together with a description of the general
nature of any special business to be conducted at the meeting, is required to be
sent to all shareholders entitled to attend the meeting at least 21 days before
the meeting. The Directors may set a record date for the purpose of determining
the shareholders entitled to receive notice of the meeting, but such record date
must not be less than 21 days before the date of the meeting. Similarly, the
Directors may fix a record date for the purpose of determining the shareholders
entitled vote at such meeting, which date may not be more than four months
before the meeting. A quorum for a general meeting of shareholders is two
persons who are, or who represent(s) by proxy, shareholders holding, in the
aggregate, not less than 5% of the Common Shares. Registered shareholders, and
duly appointed proxyholders for registered shareholders, together with the
Directors, the president, the secretary, the assistant secretary, any lawyer for
Cardero, the auditor of Cardero and any other persons invited by the Directors
are entitled to attend any general meeting of the shareholders.

There are no provisions in the New Articles requiring the
disclosure of shareholder ownership above any threshold.

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10.C           Material
Contracts

Each material contract, other than contracts entered into in
the ordinary course of business, to which the Company has been a party, for the
two years immediately preceding the publication of this annual report is listed
as an exhibit to this annual report and is summarized below or elsewhere herein.

1. ****General
Security Agreement dated April 22, 2013 (Luxor GSA) among Cardero, as
borrower, and Luxor Capital Partners, LP, Luxor Capital Partners Offshore Master
Fund, LP, Luxor Wavefront, LP and OC 19 Master Fund, L.P.  LCG (collectively,
the  Luxor Lenders), pursuant to which Cardero has created in favour of and
granted to the Luxor Lenders a security interest in all personal property of
Cardero as security for the payment and performance of all obligations and
liabilities of Cardero to the Luxor Lenders, including pursuant to the Luxor
Notes in accordance with the Personal Property Security Act(BC). See
Item 4.A History and Development of the Company. Upon an event of default
(which includes, inter alia, a failure by Cardero to make any payment
within 3 days of the due date thereof, Cardero threatening to cease, or ceasing,
to carry on business, Cardero becoming insolvent, any creditor of Cardero
seeking to place Cardero into bankruptcy or seeking to appoint a receiver for
Cardero (each, an Event of Default), the Luxor Lenders may realize on the
security interest and may, inter alia, collect upon any monies owed to
Cardero, sell, lease or otherwise dispose of any of the assets of Cardero or
appoint a receiver for the undertaking of Cardero. The Luxor GSA was terminated
and the security interest released effective August 8, 2013.

2. ****Securities
Pledge Agreement dated April 22, 2013 (Luxor SPA) among Cardero, as borrower
and the Luxor Lenders pursuant to which Cardero pledged to the Luxor Lenders,
and granted to the Luxor Lenders specific security interest in, all of the
issued and outstanding shares of Cardero Coal (CC Shares) to secure the
payment and performance by Cardero of any and all indebtedness, liabilities and
obligations of Cardero to the Luxor Lenders under and in connection with the
Luxor Notes. See Item 4.A History and Development of the Company. Upon the
occurrence of an Event of Default, the Luxor Lenders are entitled to transfer
the CC Shares to the Luxor Lenders or their nominee, vote the CC Shares, sell or
otherwise dispose of the CC Shares or accept the CC Shares in full satisfaction
of Carderos obligations secured by such pledge. The Luxor SPA was terminated
and the security interest in the released effective August 8, 2013.

3.****
Guarantee dated April 22, 2013 (Luxor CC Guarantee) among Cardero Coal, as
guarantor, and the Luxor Lenders pursuant to which Cardero Coal irrevocably and
unconditionally guarantees to the Luxor Lenders the due and punctual payment,
and the due performance of the obligations of Cardero to the Luxor Lenders in
connection with the Luxor Notes. See Item 4.A History and Development of the
Company. Upon demand, Cardero Coal is required, under the Luxor CC Guarantee,
to pay and perform any of the obligations of Cardero to the Luxor Lenders under
or pursuant to the Luxor Notes and which have not been paid or performed by
Cardero. The Luxor Lenders are not required to exhaust their remedies against
Cardero before realizing on the Luxor CC Guarantee. The Luxor CC Guarantee was
terminated and the obligations of Cardero Coal thereunder ceased effective
August 8, 2013.

4. ****General
Security Agreement dated August 8, 2013 (Kopple GSA) among Cardero, as
borrower, and E.L. Properties II Trust and Kopple Family Partnership, LP
(collectively, the Kopple Lenders), pursuant to which Cardero has created in
favour of and granted to the Kopple Lenders a security interest in all personal
property of Cardero as security for the payment and performance of all
obligations and liabilities of Cardero to the Kopple Lenders, including pursuant
to the Kopple Notes and the Line of Credit in accordance with the Personal
Property Security Act(BC). See Item 4.A History and Development of the
Company. Upon an Event of Default, the Kopple Lenders may realize on the
security interest and may, inter alia, collect upon any monies owed to
Cardero, sell, lease or otherwise dispose of any of the assets of Cardero or
appoint a receiver for the undertaking of Cardero.

5. ****Securities
Pledge Agreement dated August 8, 2013 (Kopple SPA) among Cardero, as borrower
and the Kopple Lenders pursuant to which Cardero pledged to the Kopple Lenders,
and granted to the Kopple Lenders specific security interest in, all of the CC
Shares to secure the payment and performance by Cardero of any and all indebtedness, liabilities and obligations of
Cardero to the Kopple Lenders under and in connection with the Kopple Notes. See
Item 4.A History and Development of the Company. Upon the occurrence of an
Event of Default, the Kopple Lenders are entitled to transfer the CC Shares to
the Kopple Lenders or their nominee, vote the CC Shares, sell or otherwise
dispose of the CC Shares or accept the CC Shares in full satisfaction of
Carderos obligations secured by such pledge.

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6. ****Guarantee
dated August 8, 2013 (Kopple CC Guarantee) among Cardero Coal, as guarantor,
and the Kopple Lenders pursuant to which Cardero Coal irrevocably and
unconditionally guarantees to the Kopple Lenders the due and punctual payment,
and the due performance of the obligations of Cardero to the Kopple Lenders in
connection with the Kopple Notes and the Line of Credit. See Item 4.A History
and Development of the Company. Upon demand, Cardero Coal is required, under
the Kopple CC Guarantee, to pay and perform any of the obligations of Cardero to
the Kopple Lenders under or pursuant to the Kopple Notes and the Line of Credit
which have not been paid or performed by Cardero. The Kopple Lenders are not
required to exhaust their remedies against Cardero before realizing on the
Kopple CC Guarantee.

10.D        Exchange
Controls

There are no governmental laws, decrees, regulations or other
legislation, including foreign exchange controls, in Canada which may affect the
export or import of capital or that may affect the remittance of dividends,
interest or other payments to non-resident holders of Carderos securities. Any
such remittances to United States residents, however, are subject to a
withholding tax pursuant to the Canada  U.S. Income tax Convention
(1980) (the Treaty), as amended.

There is no limitation imposed by Canadian law or by the New
Articles on the right of a non-resident to hold or vote Common Shares or
preference shares with voting rights (the Voting Shares), other than as
provided in the Investment Canada Act (the ICA). The ICA requires a
non-Canadian making an investment which would result in the acquisition of
control of a Canadian business or an investment to establish a new Canadian
business, to identify, notify, or (if the gross value of the assets of the
target Canadian business exceed a certain monetary threshold or if the
transaction is considered to be an investment that could be injurious to
Canadian national security) file an application for review with the Investment
Review Division of Industry Canada (IRD).

The notification procedure involves a brief statement of
information about the investment on a prescribed form which is required to be
filed with the IRD by the investor at any time up to 30 days following
implementation of the investment. It is intended that investments requiring only
notification will proceed without government intervention unless the investment
is in a specific type of business activity related to Canadas cultural heritage
and national identity.

If an investment is reviewable under the ICA, an application
for review in the form prescribed is normally required to be filed with the IRD
prior to the investment taking place and the investment may not be implemented
until the review has been completed and the Minister of Industry (Minister)
(the Minister responsible for Investment Canada) is satisfied that the
investment is likely to be of net benefit to Canada (and, if applicable, is
satisfied that the investment would not be injurious to Canadian national
security). The Minister has up to 75 days to make this determination, though
this period can be extended by agreement between the IRD and the investor. The
period within which a decision is to be made may be further extended, in the
case of a national security review, for a period of up to 130 days, or longer
with the consent of the non-Canadian investor. If the Minister is not satisfied
that the investment is likely to be of net benefit to Canada, the non-Canadian
must not implement the investment or, if the investment has been implemented,
may be required to divest itself of control of the business that is the subject
of the investment. If the Governor-in-Council considers that it is advisable to
protect national security, it may prohibit the investment, authorize it to
proceed on conditions, or require divestiture.

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10.E       
Taxation

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a general summary of certain material U.S.
federal income tax considerations applicable to a U.S. Holder (as defined below)
arising from and relating to the acquisition, ownership, and disposition of
Common Shares.

This summary is for general information purposes only and does
not purport to be a complete analysis or listing of all potential U.S. federal
income tax considerations that may apply to a U.S. Holder arising from and
relating to the acquisition, ownership, and disposition of Common Shares. In
addition, this summary does not take into account the individual facts and
circumstances of any particular U.S. Holder that may affect the U.S. federal
income tax consequences to such U.S. Holder, including specific tax consequences
to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is
not intended to be, and should not be construed as, legal or U.S. federal income
tax advice with respect to any U.S. Holder. This summary does not address the
U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and
local, and foreign tax consequences to U.S. Holders of the acquisition,
ownership, and disposition of Common Shares. In addition, except as specifically
set forth below, this summary does not discuss applicable tax reporting
requirements. Each prospective U.S. Holder should consult its own tax advisors
regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal
estate and gift, U.S. state and local, and foreign tax consequences relating to
the acquisition, ownership and disposition of Common Shares.

No legal opinion from U.S. legal counsel or ruling from the
Internal Revenue Service (the IRS) has been requested, or will be obtained,
regarding the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of Common Shares. This summary is not binding on the
IRS, and the IRS is not precluded from taking a position that is different from,
and contrary to, the positions taken in this summary. In addition, because the
authorities on which this summary is based are subject to various
interpretations, the IRS and the U.S. courts could disagree with one or more of
the conclusions described in this summary.

Scope of this Summary

Authorities

This summary is based on the Internal Revenue Code
of 1986, as amended (the Code), Treasury Regulations (whether final,
temporary, or proposed), published rulings of the IRS, published administrative
positions of the IRS, the Convention Between Canada and the United States of
America with Respect to Taxes on Income and on Capital, signed September 26,
1980, as amended (the Canada-U.S. Tax Convention), and U.S. court decisions
that are applicable and, in each case, as in effect and available, as of the
date of this document. Any of the authorities on which this summary is based
could be changed in a material and adverse manner at any time, and any such
change could be applied on a retroactive or prospective basis which could affect
the U.S. federal income tax considerations described in this summary. This
summary does not discuss the potential effects, whether adverse or beneficial,
of any proposed legislation.

U.S.
Holders

For
purposes of this summary, the term U.S. Holder means a beneficial owner of
Common Shares that is for U.S. federal income tax purposes:

- an individual who is a citizen or resident of the U.S.;

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- a corporation (or other entity taxable as a corporation for U.S. federal
  income tax purposes) organized under the laws of the U.S., any state thereof
  or the District of Columbia;
- an estate whose income is subject to U.S. federal income taxation
  regardless of its source; or
- a trust that (1) is subject to the primary supervision of a court within
  the U.S. and the control of one or more U.S. persons for all substantial
  decisions or (2) has a valid election in effect under applicable Treasury
  Regulations to be treated as a U.S. person.

Non-U.S.
Holders

For
purposes of this summary, a non-U.S. Holder is a beneficial owner of Common
Shares that is not a U.S. Holder or a partnership. This summary does not address
the U.S. federal income tax consequences to non-U.S. Holders arising from and
relating to the acquisition, ownership, and disposition of Common Shares.
Accordingly, a non-U.S. Holder should consult its own tax advisors regarding the
U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift,
U.S. state and local, and foreign tax consequences (including the potential
application of and operation of any income tax treaties) relating to the
acquisition, ownership, and disposition of Common Shares.

U.S.
Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This
summary does not address the U.S. federal income tax considerations applicable
to U.S. Holders that are subject to special provisions under the Code,
including, but not limited to, the following U.S. Holders that: (a) are
tax-exempt organizations, qualified retirement plans, individual retirement
accounts, or other tax-deferred accounts; (b) are financial institutions,
underwriters, insurance companies, real estate investment trusts, or regulated
investment companies; (c) are broker-dealers, dealers, or traders in securities
or currencies that elect to apply a mark-to-market accounting method; (d) have a
functional currency other than the U.S. dollar; (e) own Common Shares as part
of a straddle, hedging transaction, conversion transaction, constructive sale,
or other arrangement involving more than one position; (f) acquired Common
Shares in connection with the exercise of employee stock options or otherwise as
compensation for services; (g) hold Common Shares other than as a capital asset
within the meaning of Section 1221 of the Code (generally, property held for
investment purposes); or (h) own or have owned (directly, indirectly, or by
attribution) 10% or more of the total combined voting power of the outstanding
shares of the Company. This summary also does not address the U.S. federal
income tax considerations applicable to U.S. Holders who are: (a) U.S.
expatriates or former long-term residents of the U.S.; (b) persons that have
been, are, or will be a resident or deemed to be a resident in Canada for
purposes of the Income Tax Act (Canada) (the Tax Act); (c) persons that use or
hold, will use or hold, or that are or will be deemed to use or hold Common
Shares in connection with carrying on a business in Canada; (d) persons whose
Common Shares constitute taxable Canadian property under the Tax Act; or (e)
persons that have a permanent establishment in Canada for the purposes of the
Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions
under the Code, including, but not limited to, U.S. Holders described
immediately above, should consult their own tax advisors regarding the U.S.
federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and foreign tax consequences relating to the acquisition,
ownership and disposition of Common Shares.

If
an entity or arrangement that is classified as a partnership (or other
pass-through entity) for U.S. federal income tax purposes holds Common Shares,
the U.S. federal income tax consequences to such entity and the partners (or
other owners) of such entity generally will depend on the activities of the
entity and the status of such partners (or owners). This summary does not
address the tax consequences to any such entity or owner. Partners (or other
owners) of entities or arrangements that are classified as partnerships or as
pass-through entities for U.S. federal income tax purposes should consult
their own tax advisors regarding the U.S. federal income tax consequences
arising from and relating to the acquisition, ownership, and disposition of
Common Shares.

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Passive Foreign Investment Company Rules

PFIC
Status of the Company

If
the Company were to constitute a passive foreign investment company under the
meaning of Section 1297 of the Code (a PFIC, as defined below) for any year
during a U.S. Holders holding period, then certain potentially adverse rules
will affect the U.S. federal income tax consequences to a U.S. Holder resulting
from the acquisition, ownership and disposition of Common Shares. The Company
believes that it was classified as a PFIC during the tax year ended October 31,
2013, and may be a PFIC in its current and future tax years. The determination
of whether any corporation was, or will be, a PFIC for a tax year depends, in
part, on the application of complex U.S. federal income tax rules, which are
subject to differing interpretations. In addition, whether any corporation will
be a PFIC for any tax year depends on the assets and income of such corporation
over the course of each such tax year and, as a result, cannot be predicted with
certainty as of the date of this document. Accordingly, there can be no
assurance that the IRS will not challenge any determination made by the Company
(or any subsidiary of the Company) concerning its PFIC status. Each U.S. Holder
should consult its own tax advisors regarding the PFIC status of the Company and
any subsidiary of the Company.

In
any year in which the Company is classified as a PFIC, a U.S. Holder will be
required to file an annual report with the IRS containing such information as
Treasury Regulations and/or other IRS guidance may require. A failure to satisfy
such reporting requirements may result in an extension of the time period during
which the IRS can assess a tax. U.S. Holders should consult their own tax
advisors regarding the requirements of filing such information returns under
these rules, including the requirement to file an IRS Form 8621.

The
Company generally will be a PFIC if, for a tax year, (a) 75% or more of the
gross income of the Company is passive income (the income test) or (b) 50% or
more of the value of the Companys assets either produce passive income or are
held for the production of passive income, based on the quarterly average of the
fair market value of such assets (the asset test). Gross income generally
includes all sales revenues less the cost of goods sold, plus income from
investments and from incidental or outside operations or sources, and passive
income generally includes, for example, dividends, interest, certain rents and
royalties, certain gains from the sale of stock and securities, and certain
gains from commodities transactions.

Active
business gains arising from the sale of commodities generally are excluded from
passive income if substantially all (85% or more) of a foreign corporations
commodities are stock in trade or inventory, depreciable property used in a
trade or business, or supplies regularly used or consumed in the ordinary course
of its trade or business, and certain other requirements are satisfied.

For
purposes of the PFIC income test and asset test described above, if the Company
owns, directly or indirectly, 25% or more of the total value of the outstanding
shares of another corporation, the Company will be treated as if it (a) held a
proportionate share of the assets of such other corporation and (b) received
directly a proportionate share of the income of such other corporation. In
addition, for purposes of the PFIC income test and asset test described above,
and assuming certain other requirements are met, passive income does not
include certain interest, dividends, rents, or royalties that are received or
accrued by the Company from certain related persons (as defined in Section
954(d)(3) of the Code), to the extent such items are properly allocable to the
income of such related person that is not passive income.

Under
certain attribution rules, if the Company is a PFIC, U.S. Holders will generally
be deemed to own their proportionate share of the Companys direct or indirect
equity interest in any company that is also a PFIC (a Subsidiary PFIC), and
will be subject to U.S. federal income tax on their proportionate share of (a)
any excess distributions, as described below, on the stock of a Subsidiary
PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary
PFIC by the Company or another Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary
PFIC. In addition, U.S. Holders may be subject to U.S. federal income tax on any
indirect gain realized on the stock of a Subsidiary PFIC on the sale or
disposition of Common Shares. Accordingly, U.S. Holders should be aware that
they could be subject to tax even if no distributions are received and no
redemptions or other dispositions of Common Shares are made.

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Default
PFIC Rules Under Section 1291 of the Code

If
the Company is a PFIC for any tax year during which a U.S. Holder owns Common
Shares, the U.S. federal income tax consequences to such U.S. Holder of the
acquisition, ownership, and disposition of Common Shares will depend on whether
and when such U.S. Holder makes an election to treat the Company and each
Subsidiary PFIC, if any, as a qualified electing fund or QEF under Section
1295 of the Code (a QEF Election) or makes a mark-to-market election under
Section 1296 of the Code (a Mark-to-Market Election). A U.S. Holder that does
not make either a QEF Election or a Mark-to-Market Election will be referred to
in this summary as a Non-Electing U.S. Holder.

A
Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the
Code (described below) with respect to (a) any gain recognized on the sale or
other taxable disposition of Common Shares and (b) any excess distribution
received on the Common Shares. A distribution generally will be an excess
distribution to the extent that such distribution (together with all other
distributions received in the current tax year) exceeds 125% of the average
distributions received during the three preceding tax years (or during a U.S.
Holders holding period for the Common Shares, if shorter).

Under
Section 1291 of the Code, any gain recognized on the sale or other taxable
disposition of Common Shares (including an indirect disposition of the stock of
any Subsidiary PFIC), and any excess distribution received on Common Shares or
with respect to the stock of a Subsidiary PFIC, must be ratably allocated to
each day in a Non-Electing U.S. Holders holding period for the respective
Common Shares. 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. The amounts allocated to any other tax year would be subject to U.S.
federal income tax at the highest tax rate applicable to ordinary income in each
such year, and an interest charge would be imposed on the tax liability for each
such year, calculated as if such tax liability had been due in each such year. A
Non-Electing U.S. Holder that is not a corporation must treat any such interest
paid as personal interest, which is not deductible.

If
the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder
holds Common Shares, the Company will continue to be treated as a PFIC with
respect to such Non-Electing U.S. Holder, regardless of whether the Company
ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S.
Holder may terminate this deemed PFIC status by electing to recognize gain
(which will be taxed under the rules of Section 1291 of the Code discussed
above), but not loss, as if such Common Shares were sold on the last day of the
last tax year for which the Company was a PFIC.

QEF
Election

A
U.S. Holder that makes a timely and effective QEF Election for the first tax
year in which the holding period of its Common Shares begins generally will not
be subject to the rules of Section 1291 of the Code discussed above with respect
to its Common Shares. A U.S. Holder that makes a timely and effective QEF
Election will be subject to U.S. federal income tax on such U.S. Holders pro
rata share of (a) the net capital gain of the Company, which will be taxed as
long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the
Company, which will be taxed as ordinary income to such U.S. Holder. Generally,
net capital gain is the excess of (a) net long-term capital gain over (b) net
short-term capital loss, and ordinary earnings are the excess of (a) earnings
and profits over (b) net capital gain. A U.S. Holder that makes a QEF Election
will be subject to U.S. federal income tax on such amounts for each tax year in
which the Company is a PFIC, regardless of whether such amounts are actually
distributed to such U.S. Holder by the Company. However, for any tax year in which the Company is
a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election
would not have any income inclusions as a result of the QEF Election. If a U.S.
Holder that made a QEF Election has an income inclusion, such a U.S. Holder may,
subject to certain limitations, elect to defer payment of current U.S. federal
income tax on such amounts, subject to an interest charge. If such U.S. Holder
is not a corporation, any such interest paid will be treated as personal
interest, which is not deductible.

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A U.S. Holder that makes a timely and effective
QEF Election with respect to the Company generally (a) may receive a tax-free
distribution from the Company to the extent that such distribution represents
earnings and profits of the Company that were previously included in income by
the U.S. Holder because of such QEF Election and (b) will adjust such U.S.
Holders tax basis in the Common Shares to reflect the amount included in income
or allowed as a tax-free distribution because of such QEF Election. In addition,
a U.S. Holder that makes a QEF Election generally will recognize capital gain or
loss on the sale or other taxable disposition of Common Shares.

The
procedure for making a QEF Election, and the U.S. federal income tax
consequences of making a QEF Election, will depend on whether such QEF Election
is timely. A QEF Election will be treated as timely if such QEF Election is
made for the first year in the U.S. Holders holding period for the Common
Shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF
Election by filing the appropriate QEF Election documents at the time such U.S.
Holder files a U.S. federal income tax return for such year. If a U.S. Holder
does not make a timely and effective QEF Election for the first year in the U.S.
Holders holding period for the Common Shares, the U.S. Holder may still be able
to make a timely and effective QEF Election in a subsequent year if such U.S.
Holder meets certain requirements and makes a purging election to recognize
gain (which will be taxed under the rules of Section 1291 of the Code discussed
above) as if such Common Shares were sold for their fair market value on the day
the QEF Election is effective. If a U.S. Holder owns PFIC stock indirectly
through another PFIC, separate QEF Elections must be made for the PFIC in which
the U.S. Holder is a direct shareholder and the Subsidiary PFIC for the QEF
rules to apply to both PFICs.

A QEF Election will apply to the tax year for which such QEF Election is timely
made and to all subsequent tax years, unless such QEF Election is invalidated or
terminated or the IRS consents to revocation of such QEF Election. If a U.S.
Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to
be a PFIC, the QEF Election will remain in effect (although it will not be
applicable) during those tax years in which the Company is not a PFIC.
Accordingly, if the Company becomes a PFIC in another subsequent tax year, the
QEF Election will be effective and the U.S. Holder will be subject to the QEF
rules described above during any subsequent tax year in which the Company
qualifies as a PFIC.

U.S.
Holders should be aware that there can be no assurances that the Company will
satisfy the record keeping requirements that apply to a QEF, or that the Company
will supply U.S. Holders with information that such U.S. Holders are required to
report under the QEF rules, in the event that the Company is a PFIC. Thus, U.S.
Holders may not be able to make a QEF Election with respect to their Common
Shares. Each U.S. Holder should consult its own tax advisors regarding the
availability of, and procedure for making, a QEF Election.

A
U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621,
including a PFIC Annual Information Statement, to a timely filed United States
federal income tax return. However, if the Company cannot provide the required
information with regard to the Company or any of its Subsidiary PFICs, U.S.
Holders will not be able to make a QEF Election for such entity and will
continue to be subject to the rules discussed above that apply to Non-Electing
U.S. Holders with respect to the taxation of gains and excess distributions.

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Mark-to-Market Election

A
U.S. Holder may make a Mark-to-Market Election only if the Common Shares are
marketable stock. The Common Shares generally will be marketable stock if the
Common Shares are regularly traded on (a) a national securities exchange that is
registered with the Securities and Exchange Commission, (b) the national market
system established pursuant to section 11A of the Securities and Exchange Act of
1934, or (c) a foreign securities exchange that is regulated or supervised by a
governmental authority of the country in which the market is located, provided
that (i) such foreign exchange has trading volume, listing, financial
disclosure, and surveillance requirements, and meets other requirements and the
laws of the country in which such foreign exchange is located, together with the
rules of such foreign exchange, ensure that such requirements are actually
enforced and (ii) the rules of such foreign exchange effectively promote active
trading of listed stocks. If such stock is traded on such a qualified exchange
or other market, such stock generally will be regularly traded for any
calendar year during which such stock is traded, other than in de minimis
quantities, on at least 15 days during each calendar quarter.

A
U.S. Holder that makes a Mark-to-Market Election with respect to its Common
Shares generally will not be subject to the rules of Section 1291 of the Code
discussed above with respect to such Common Shares. However, if a U.S. Holder
does not make a Mark-to-Market Election beginning in the first tax year of such
U.S. Holders holding period for the Common Shares or such U.S. Holder has not
made a timely QEF Election, the rules of Section 1291 of the Code discussed
above will apply to certain dispositions of, and distributions on, the Common
Shares.

A
U.S. Holder that makes a Mark-to-Market Election will include in ordinary
income, for each tax year in which the Company 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 tax year over (b) such U.S. Holders adjusted tax basis in such
Common Shares. A U.S. Holder that makes a Mark-to-Market Election will be
allowed a deduction in an amount equal to the excess, if any, of (a) such U.S.
Holders adjusted tax basis in the Common Shares, over (b) the fair market value
of such Common Shares (but only to the extent of the net amount of previously
included income as a result of the Mark-to-Market Election for prior tax years).

A
U.S. Holder that makes a Mark-to-Market Election generally also will adjust such
U.S. Holders tax basis in the Common Shares to reflect the amount included in
gross income or allowed as a deduction because of such Mark-to-Market Election.
In addition, upon a sale or other taxable disposition of Common Shares, a U.S.
Holder that makes a Mark-to-Market Election will recognize ordinary income or
ordinary loss (not to exceed the excess, if any, of (a) the amount included in
ordinary income because of such Mark-to-Market Election for prior tax years over
(b) the amount allowed as a deduction because of such Mark-to-Market Election
for prior tax years). Losses that exceed this limitation are subject to the
rules generally applicable to losses provided in the Code and Treasury
Regulations.

A
Mark-to-Market Election applies to the tax year in which such Mark-to-Market
Election is made and to each subsequent tax year, unless the Common Shares cease
to be marketable stock or the IRS consents to revocation of such election.
Each U.S. Holder should consult its own tax advisors regarding the availability
of, and procedure for making, a Mark-to-Market Election.

Although
a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to
the Common Shares, no such election may be made with respect to the stock of any
Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is
not marketable. Hence, the Mark-to-Market Election will not be effective to
avoid the application of the default rules of Section 1291 of the Code described
above with respect to deemed dispositions of Subsidiary PFIC stock or excess
distributions from a Subsidiary PFIC.

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Other PFIC Rules

Under
Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations
that, subject to certain exceptions, would cause a U.S. Holder that had not made
a timely QEF Election to recognize gain (but not loss) upon certain transfers of
Common Shares that would otherwise be tax-deferred (e.g., gifts and exchanges
pursuant to corporate reorganizations). However, the specific U.S. federal
income tax consequences to a U.S. Holder may vary based on the manner in which
Common Shares are transferred.

Certain
additional adverse rules may apply with respect to a U.S. Holder if the Company
is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For
example, under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common
Shares as security for a loan will, except as may be provided in Treasury
Regulations, be treated as having made a taxable disposition of such Common
Shares.

Special
rules also apply to the amount of foreign tax credit that a U.S. Holder may
claim on a distribution from a PFIC. Subject to such special rules, foreign
taxes paid with respect to any distribution in respect of stock in a PFIC are
generally eligible for the foreign tax credit. The rules relating to
distributions by a PFIC and their eligibility for the foreign tax credit are
complicated, and a U.S. Holder should consult with its own tax advisors
regarding the availability of the foreign tax credit with respect to
distributions by a PFIC.

The
PFIC rules are complex, and each U.S. Holder should consult its own tax advisors
regarding the PFIC rules and how the PFIC rules may affect the U.S. federal
income tax consequences of the acquisition, ownership, and disposition of Common
Shares.

Ownership and Disposition of Common Shares

The
following discussion is subject to the rules described above under the heading
Passive Foreign Investment Company Rules.

Distributions on Common Shares

A
U.S. Holder that receives a distribution, including a constructive distribution,
with respect to a Common Share will be required to include the amount of such
distribution in gross income as a dividend (without reduction for any Canadian
income tax withheld from such distribution) to the extent of the current or
accumulated earnings and profits of the Company, as computed for U.S. federal
income tax purposes. A dividend generally will be taxed to a U.S. Holder at
ordinary income tax rates if the Company is a PFIC. To the extent that a
distribution exceeds the current and accumulated earnings and profits of the
Company, such distribution will be treated first as a tax-free return of capital
to the extent of a U.S. Holders tax basis in the Common Shares and thereafter
as gain from the sale or exchange of such Common Shares. (See Sale or Other
Taxable Disposition of Common Shares below). However, the Company may not
maintain the calculations of its earnings and profits in accordance with U.S.
federal income tax principles, and each U.S. Holder may have to assume that any
distribution by the Company with respect to the Common Shares will constitute
ordinary dividend income. Dividends received on Common Shares generally will not
be eligible for the dividends received deduction. Subject to applicable
limitations, dividends paid by the Company to non-corporate U.S. Holders,
including individuals, generally will be eligible for the preferential tax rates
applicable to long-term capital gains for dividends, provided certain holding
period and other conditions are satisfied, including that the Company not be
classified as a PFIC in the tax year of distribution or in the preceding tax
year. The dividend rules are complex, and each U.S. Holder should consult its
own tax advisors regarding the application of such rules.

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Sale or Other Taxable Disposition of Common Shares

Upon
the sale or other taxable disposition of Common Shares, a U.S. Holder generally
will recognize capital gain or loss in an amount equal to the difference between
the U.S. dollar value of cash received plus the fair market value of any
property received and such U.S. Holders tax basis in such Common Shares sold or
otherwise disposed of. A U.S. Holders tax basis in Common Shares generally will
be such holders U.S. dollar cost for such Common Shares. Gain or loss
recognized on such sale or other disposition generally will be long-term capital
gain or loss if, at the time of the sale or other disposition, the Common Shares
have been held for more than one year.

Preferential
tax rates currently apply to long-term capital gain of a U.S. Holder that is an
individual, estate, or trust. There are currently no preferential tax rates for
long-term capital gain of a U.S. Holder that is a corporation. Deductions for
capital losses are subject to significant limitations under the Code.

Additional Considerations

Additional Tax on Passive Income

Certain
individuals, estates and trusts whose income exceeds certain thresholds will be
required to pay a 3.8% Medicare surtax on net investment income including,
among other things, dividends and net gain from dispositions of property (other
than property held in certain trades or businesses). U.S. Holders should consult
with their own tax advisors regarding the effect, if any, of this tax on their
ownership and disposition of Common Shares.

Receipt of Foreign Currency

The
amount of any distribution paid to a U.S. Holder in foreign currency, or on the
sale, exchange or other taxable disposition of Common Shares, generally will be
equal to the U.S. dollar value of such foreign currency based on the exchange
rate applicable on the date of receipt (regardless of whether such foreign
currency is converted into U.S. dollars at that time). A U.S. Holder will have a
basis in the foreign currency equal to its U.S. dollar value on the date of
receipt. Any U.S. Holder who converts or otherwise disposes of the foreign
currency after the date of receipt may have a foreign currency exchange gain or
loss that would be treated as ordinary income or loss, and generally will be
U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder
should consult its own U.S. tax advisors regarding the U.S. federal income tax
consequences of receiving, owning, and disposing of foreign currency.

Foreign Tax Credit

Subject
to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or
through withholding) Canadian income tax with respect to dividends paid on the
Common Shares generally will be entitled, at the election of such U.S. Holder,
to receive either a deduction or a credit for such Canadian income tax.
Generally, a credit will reduce a U.S. Holders U.S. federal income tax
liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S.
Holders income subject to U.S. federal income tax. This election is made on a
year-by-year basis and applies to all foreign taxes paid (whether directly or
through withholding) by a U.S. Holder during a year.

Complex
limitations apply to the foreign tax credit, including the general limitation
that the credit cannot exceed the proportionate share of a U.S. Holders U.S.
federal income tax liability that such U.S. Holders foreign source taxable
income bears to such U.S. Holders worldwide taxable income. In applying this
limitation, a U.S. Holders various items of income and deduction must be
classified, under complex rules, as either foreign source or U.S. source.
Generally, dividends paid by a foreign corporation should be treated as foreign
source for this purpose, and gains recognized on the sale of stock of a foreign
corporation by a U.S. Holder should be treated as U.S. source for this purpose,
except as otherwise provided in an applicable income tax treaty, and if an election is properly
made under the Code. However, the amount of a distribution with respect to the
Common Shares that is treated as a dividend may be lower for U.S. federal
income tax purposes than it is for Canadian federal income tax purposes,
resulting in a reduced foreign tax credit allowance to a U.S. Holder. In
addition, this limitation is calculated separately with respect to specific
categories of income. The foreign tax credit rules are complex, and each U.S.
Holder should consult its own U.S. tax advisors regarding the foreign tax credit
rules.

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Backup Withholding and Information Reporting

Under
U.S. federal income tax law and Treasury Regulations, certain categories of U.S.
Holders must file information returns with respect to their investment in, or
involvement in, a foreign corporation. For example, U.S. return disclosure
obligations (and related penalties) are imposed on individuals who are U.S.
Holders that hold certain specified foreign financial assets in excess of
threshold amounts. The definition of specified foreign financial assets includes
not only financial accounts maintained in foreign financial institutions, but
also, unless held in accounts maintained by a financial institution, any stock
or security issued by a non-U.S. person, any financial instrument or contract
held for investment that has an issuer or counterparty other than a U.S. person
and any interest in a foreign entity. U.S. Holders may be subject to these
reporting requirements unless their Common Shares are held in an account at
certain financial institutions. Penalties for failure to file certain of these
information returns are substantial. U.S. Holders should consult with their own
tax advisors regarding the requirements of filing information returns, including
the requirement to file an IRS Form 8938.

Payments
made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and
proceeds arising from the sale or other taxable disposition of, Common Shares
will generally be subject to information reporting and backup withholding tax,
at the rate of 28%, if a U.S. Holder (a) fails to furnish such U.S. Holders
correct U.S. taxpayer identification number (generally on Form W-9), (b)
furnishes an incorrect U.S. taxpayer identification number, (c) is notified by
the IRS that such U.S. Holder has previously failed to properly report items
subject to backup withholding tax, or (d) fails to certify, under penalty of
perjury, that such U.S. Holder has furnished its correct U.S. taxpayer
identification number and that the IRS has not notified such U.S. Holder that it
is subject to backup withholding tax. However, certain exempt persons generally
are excluded from these information reporting and backup withholding rules.
Backup withholding is not an additional tax. Any amounts withheld under the U.S.
backup withholding tax rules will be allowed as a credit against a U.S. Holders
U.S. federal income tax liability, if any, or will be refunded, if such U.S.
Holder furnishes required information to the IRS in a timely manner.

The
discussion of reporting requirements set forth above is not intended to
constitute an exhaustive description of all reporting requirements that may
apply to a U.S. Holder. A failure to satisfy certain reporting requirements may
result in an extension of the time period during which the IRS can assess a tax,
and under certain circumstances, such an extension may apply to assessments of
amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder
should consult its own tax advisors regarding the information reporting and
backup withholding rules.

10.F      Dividends and Paying
Agents

Not applicable.

10.G      Statement by Experts

Not applicable.

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10.H      Documents on Display

The Companys reports and other information, including this
annual report and the exhibits thereto, as filed with the SEC in accordance with
the Exchange Act, may be inspected and copied at the public reference facilities
maintained by the SEC at Judiciary Plaza, 100 F Street NE, Washington, D.C.
20549. Copies of such material may also be obtained from the Public Reference
Section of the SEC at 100 F Street NE, Washington, D.C. 20549, at prescribed
rates. Information may be obtained regarding the Washington D.C. Public
Reference Room by calling the SEC at 1-800-SEC-0330 or by contacting the
Securities and Exchange Commission over the Internet at its website at
http://www.sec.gov.

Publicly available data on the Companys mineral properties may
be viewed at the Companys head office, located at Suite 2300  1177 West
Hastings Street, Vancouver, British Columbia, Canada, V6E 2K3, and the Companys
website at http://www.cardero.comand on the
SEDAR website at http://www.sedar.com.

Publicly available material contracts and corporate records may
be viewed at the Companys registered and records office located at 550 Burrard
Street, Suite 2300, P.O. Box 30, Bentall 5, Vancouver, British Columbia, Canada,
V6C 2B5.

10.I      Subsidiary Information

Not applicable.

**ITEM
11.**       **QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

The Company manages its capital structure, and makes
adjustments to it, based on the funds available to the Company in order to
support future business opportunities. The Company defines its capital as
shareholders equity. The Board of Directors does not establish quantitative
return on capital criteria for management, but rather relies on the expertise of
the Companys management to sustain future development of the business.

The Company currently has no source of revenues; as such, the
Company is dependent upon external financings or the sale of assets (or an
interest therein) to fund activities. In order to carry future projects and pay
for administrative costs, the Company will spend its existing working capital
and raise additional funds as needed. Management reviews its capital management
approach on an ongoing basis and believes that this approach, given the relative
size of the Company, is reasonable. There were no changes in the Companys
approach to capital management during the year ended October 31, 2013. The
Company is not subject to externally imposed capital requirements.

The Company classified its cash and cash equivalents as loans
and receivables; accounts receivable and due from related parties as loans and
receivables; and accounts payable and accrued liabilities as other financial
liabilities. The classification of resource related investments is set out in
note 5. The carrying values of cash and cash equivalents, accounts receivable
and accrued liabilities approximate their fair values due to the short-term
maturity of these financial instruments. The fair values of amounts due from
related parties have not been disclosed, as their fair values cannot be reliably
measured since the parties are not at arms length.

IFRS 7 Financial instruments: Disclosuresestablishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value as follows:

| | Level 1  | quoted prices (unadjusted) in
      active markets for identical assets or liabilities;                                                                                                         
| | --------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |           |                                                                                                                                                                                                 
| | Level 2  | inputs other than quoted prices included in Level 1 that
      are observable for the asset or liability, either directly (i.e., as
      prices) or indirectly (i.e., derived from prices); and

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| | Level 3  | inputs for the asset or liability that are not
      based on observable market data (unobservable inputs).
| | --------- | -----------------------------------------------------------------------------------------------------------

The fair value hierarchy requires the use of observable market
inputs whenever such input exists. A financial instrument is classified to the
lowest level of the hierarchy for which a significant input has been considered
in measuring fair value.

The following table sets forth the Companys significant
financial assets measured at fair value by level within the fair value
hierarchy.

October 31, 2013
    Level 1
    Level 2
    Level 3
    TotalResource related investments
    409,276
    87,470
    -
    496,746October 31, 2012
    Level 1
    Level 2
    Level 3
    TotalResource related investments
    2,076,854
    494,957
    -
    2,571,811


The Companys exposure to risk on its financial instruments is
summarized below:

| | (a) | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company manages credit risk, in respect of cash and
      cash equivalents, by purchasing highly liquid, short-term investment grade
      securities held at major financial institutions in Canada in accordance
      with the Companys investment policy. In regards to amounts receivable,
      the Company is not exposed to significant credit risk, as they are
      primarily due from governmental agencies.

Oct 31, 2013
    
    
    Oct 31, 2012Bank accounts - Canada
    $
    147,356
    
    $
    1,728,431Bank accounts - USA
    
    119,704
    
    
    307,157Bank accounts - Others
    
    24,217
    
    
    106,911$
    291,277
    
    $
    2,142,499


| |     | The credit risk associated with cash and cash equivalents
      is minimized substantially by ensuring that these financial assets are
      placed with major financial institutions with strong investment-grade
      ratings given by a primary ratings agency. The Company does not hold any
      asset-backed securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | With respect to the $157,131(2012 -$523,612) due from
      related parties at October 31, 2013, of which $144,517 (2012 - $453,537)
      were past due, the maximum exposure to credit risk is the carrying value
      of the receivables as the Company does not have any collateral for the
      receivables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (b) | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Liquidity risk is the risk that the Company will
      encounter difficulty in settling its commitments. The Companys approach
      to managing liquidity risk is to provide
reasonable assurance that it will have sufficient funds to meet
      liabilities when due. The Company manages its liquidity risk by
      forecasting cash flows from operations and anticipated investing and
      financing activities. The Company normally maintains sufficient cash to
      meet the Companys business requirements. However, at October 31, 2013,
      the cash balance of 291,277 (2012 - $2,142,499) would be insufficient to
      meet the cash requirements for the Companys administrative overhead,
      maintaining its mineral interests and continuing with its exploration
      program in the coming year. Therefore, the Company will be required to
      raise additional capital in order to fund its operations in fiscal 2014
      (see notes 1 and 14). At October 31, 2013, the Company had accounts
      payable and accrued liabilities of $5,870,257 (2012 - $8,794,157) which
  are due within 30 days.

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| | (c) | Market risk                                                                                                                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                            
| |     | Market risk is the risk that the fair value or future
      cash flows of a financial instrument will fluctuate because of changes in
      market prices. Market risk comprises three types of risk: interest rate
      risk, foreign currency risk and other price risk.
| |     |                                                                                                                                                                                                                                                                            
| |     | i.                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                            
| |     | ii.                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                            
| |     | iii.                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                            

The Companys operations are not yet exposed to risks
associated with commodity prices, interest rates and credit. Commodity price
risk is defined as the potential loss that the Company may incur as a result of
changes in the fair value of gold, silver, iron, coal or other minerals that may
be produced by the Company. Industry wide risks can, however, affect the
Companys general ability to finance exploration, and development of exploitable
resources; however, such effects are not predictable or quantifiable. Market
price swings in the commodities that the Company plans to produce can affect the
general equity market for securities of companies that produce, or intend to
produce such commodities, thereby affecting the market price of the Common Shares which can have a significant effect
on the ability of the Company to raise funding through the sale of Common
Shares.

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ITEM 12.      
 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13.        DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

ITEM
14.        MATERIAL MODIFICATIONS TO THE
RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security
Holders

At the 2010 Annual General Meeting of the Company, the
shareholders approved certain modifications to the Companys articles (which
modifications became effective on March 22, 2011) that affect the rights of all
holders of Common Shares. A description of such changes is contained in the
section entitled Particulars of Other Matters to be Acted Upon  Amendment to
the Companys Articles contained in the Companys management information
circular dated May 25, 2010 which was furnished to the SEC on Form 6-K on June
2, 2010 and is incorporated by reference herein.

Use of Proceeds

Not applicable.

ITEM
15.        CONTROLS AND PROCEDURES

Evaluation of disclosure controls and
procedures

Disclosure controls and procedures are controls and other
procedures of the Company that are designed to ensure that information required
to be disclosed in the Companys reports filed or submitted as part of the
Companys continuous disclosure requirements is recorded, processed, summarized
and reported within the time periods specified by applicable regulatory
authorities, and include, without limitation, controls and procedures designed
to ensure that information required to be disclosed in the Companys reports
filed or submitted as part of the Companys continuous disclosure requirements
is gathered and communicated to management, including the Companys Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.

A significant weakness is a deficiency, or a combination of
deficiencies, in disclosure controls and procedures, such that there is a
reasonable possibility that the issuer will not disclose material information
required to be disclosed under securities legislation, within the time periods
specified in securities legislation.

Management of the Company, with the participation of Carderos
Chief Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the Companys disclosure controls and procedures as at October
31, 2013 as required by Canadian and U.S. securities laws. Based on that
evaluation, Carderos Chief Executive Officer and the Chief Financial Officer
have concluded that, as of October 31, 2013, the Companys disclosure controls
and procedures were not effective as at October 31, 2013 due to the material
weakness in internal control over financial reporting disclosed below under the
heading Managements annual report on internal control over financial
reporting.

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This Annual Report on Form 20-F for the year ended October 31,
2013 was not filed within the prescribed time period because the Company
experienced unforeseen delays in the collection and compilation of business
information to be included in this Annual Report on Form 20-F, including with
respect to its material mineral property, the Carbon Creek Project.

Managements annual report on internal control over
financial reporting

Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of the Companys financial reporting and the
preparation of financial statements for external purposes in accordance with
IFRS as issued by the IASB.

Internal control over financial reporting includes maintaining
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; providing reasonable
assurance that transactions are recorded as necessary for preparation of the
Companys financial statements in accordance with generally accepted accounting
principles; providing reasonable assurance that receipts and expenditures are
made in accordance with authorizations of management and the directors of the
Company; and providing reasonable assurance that unauthorized acquisition, use
or disposition of Companys assets that could have a material effect on its
financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of the Companys
financial statements would be prevented or detected.

Management has conducted an evaluation of the Companys
internal control over financial reporting. The evaluation is based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency (as defined in PCAOB
Auditing Standard No 5), or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a
material misstatement of the Companys annual or interim financial statements
will not be prevented or detected on a timely basis.

As of October 31, 2013, 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 annual 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.

Because of the material weakness, management has concluded that
the Companys internal control over financial reporting was not effective as at
October 31, 2013.

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This Annual Report does not include an attestation report of
the Companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm as the Company qualifies as a
non-accelerated filer and is exempt pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act.

Changes in Internal Control over Financial
reporting

The Chief Executive Officer and Chief Financial Officer have
concluded that there has been a change in the Companys internal control over
financial reporting during the period beginning on November 1, 2012 and ended on
October 31, 2013, that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting. The
change is a result of a lack of segregation of duties due to the significant
staff reductions during the year and has been noted above.

ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT

The Board has determined that Stephan Fitch, a member of the
Audit Committee, is an audit committee financial expert within the meaning of
the SECs rules. Mr. Fitch is independent under the criteria established by
NYSE MKT.

ITEM 16B.    CODE OF ETHICS

The Company has adopted a code of ethics that applies to its
principal executive officer, principal financial officer, principal accounting
officer or controller and persons performing similar functions. A copy of the
Companys code of ethics has been posted on the Companys Internet website at
http://www.cardero.com. No substantive amendments were made to the
Companys code of ethics during the fiscal year ended October 31, 2013 and no
waivers of the Companys code of ethics were granted to any principal officer of
the Company or any person performing similar functions during the fiscal year
ended October 31, 2013.

ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND
SERVICES

For fiscal years ended October 31, 2013 and 2012
PricewaterhouseCoopers LLP (PWC) was the Companys appointed auditor. The
aggregate fees billed by the Companys principal accountant in each of the last
two fiscal years for professional services rendered are as follows:

Financial Year Ending
    Audit Fees(1)
    Audit Related
      Fees(2)
    Tax Fees(3)
    All Other Fees(4)October 31, 2013
    $160,000
    $16,675(5)
    $14,000
    NilOctober 31, 2012
    $206,000
    $25,500(5)
    $43,275
    Nil


(1) The aggregate audit fees billed for the audit of the
financial statements for the fiscal year indicated, including with respect to
the audit of the Companys internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of 2002 for the fiscal
year ended October 31, 2012. (2) The aggregate fees billed for assurance and
related services that are reasonably related to the performance of the audit or
review of the Companys financial statements which are not included under the
heading Audit Fees. (3) The aggregate fees billed for professional
services rendered for tax compliance, tax advice and tax planning. The work
performed in each year was assistance in the preparation and review of Carderos
tax returns. (4) The aggregate fees billed for products and services other
than as set out under the headings Audit Fees, Audit Related Fees and Tax
Fees. (5) The services rendered are in connection with the review of the
Companys quarterly financial statements and of its Form 40F and AIF disclosure
documents and management discussion and analysis for the fiscal years indicated.

100

---

Pre-approval policies and procedures

The Audit Committee is authorized by the Board to review the
performance of Carderos external auditors and approve in advance provision of
services other than auditing and to consider the independence of the external
auditors, including reviewing the range of services provided in the context of
all consulting services bought by Cardero. The Chairman of the Audit Committee
is also authorized to approve, in advance, any non-audit services or additional
work which the Chairman deems as necessary and is required to notify the other
members of the Audit Committee of such non-audit or additional work. All such
services provided by the external auditors during the last two fiscal years were
pre-approved by the Audit Committee or Chairman of the Audit Committee in the
manner described above.

ITEM 16D.    EXEMPTIONS FROM THE LISTING
STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E.    PURCHASES OF EQUITY SECURITIES
BY THE ISSUER AND AFFILIATED PURCHASERS

The Company did not repurchase any Common Shares in the
financial year ended October 31, 2013.

ITEM 16F.    CHANGE IN REGISTRANTS
CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G.    CORPORATE GOVERNANCE

Not applicable.

ITEM 16H.    MINE SAFETY DISCLOSURE

Not applicable.

PART III

ITEM 17.      FINANCIAL STATEMENTS

The Company has elected to provide financial statements
pursuant to Item 18.

ITEM 18.      FINANCIAL STATEMENTS

The Company is filing with this annual report the
following:

- Managements Report on Internal Control Over Financial Reporting dated
  January 27, 2014.
- Independent Auditors Report dated January 27, 2014.
- Consolidated Statements of Financial Position at October 31, 2013 and
  October 31, 2012.
- Consolidated Statements of Loss for the years ended October 31, 2013,
  October 31, 2012 and October 31, 2011.
- Consolidated Statements of Comprehensive Loss for the years ended October
  31, 2013, October 31, 2012 and October 31, 2011.

101

---

- Consolidated Statements of Shareholders Equity at October 31, 2013,
  October 31, 2012, October 31, 2011 and November 1, 2010.
- Consolidated Statements of Cash Flows for the years ended October 31,
  2013, October 31, 2012 and October 31, 2011.
- Notes to the Consolidated Financial Statements for the years ended October
  31, 2013, October 31, 2012 and October 31, 2011.

102

---



CARDERO RESOURCE CORP.(An Exploration Stage Company)

Audited Consolidated Financial
Statements(Expressed in Canadian Dollars)

October 31, 2013 and 2012



Corporate Head Office

Suite 2300  1177 West Hastings Street Vancouver, British
Columbia V6E 2K3 Tel: 604-408-7488

---

|CARDERO RESOURCE CORP.           
|---------------------------------
|(AN EXPLORATION STAGE COMPANY)   
|Consolidated Financial Statements
|(Expressed in Canadian Dollars)  
|October 31, 2013                 
|                                 





|INDEX                                                          | Page
|-------------------------------------------------------------- | ----
|                                                               |     
|Reports of Independent Registered Public
      Accounting Firm |     
|                                                               |     
|Consolidated Financial
      Statements                        | 1-6 
|                                                               |     
|Consolidated Statements
      of Financial Position            | 1   
|                                                               |     
|Consolidated Statements
      of Loss                          | 2   
|                                                               |     
|Consolidated Statements
      of Comprehensive Loss            | 3   
|                                                               |     
|Consolidated Statements
      of Shareholders Equity          | 4   
|                                                               |     
|Consolidated Statements
      of Cash Flows                    | 6   
|                                                               |     
|Notes to Consolidated
      Financial Statements               | 8-33

---

CARDERO RESOURCE CORP.(AN EXPLORATION STAGE
COMPANY)Consolidated Statements of Financial Position(Expressed in Canadian Dollars)

|                                               |   | October 31  |   |   | October 31  |  
|---------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                               |   | 2013        |   |   | 2012        |  
|                                               |   |             |   |   |             |  
|ASSETS                                         |   |             |   |   |             |  
|Current                                        |   |             |   |   |             |  
|Cash and cash
      equivalents                | $ | 291,277     |   | $ | 2,142,499   |  
|Accounts receivable                            |   | 4,268,527   |   |   | 5,612,772   |  
|Due from related
      parties (note 9)        |   | 157,131     |   |   | 523,612     |  
|Prepaid expenses                               |   | 225,369     |   |   | 597,561     |  
|                                               |   |             |   |   |             |  
|Total Current Assets                           |   | 4,942,304   |   |   | 8,876,444   |  
|                                               |   |             |   |   |             |  
|Property, Plant and Equipment(note 3)          |   | 561,041     |   |   | 1,412,763   |  
|Investments(note 4)                            |   | 496,746     |   |   | 2,571,811   |  
|Exploration and Evaluation Advances            |   | 55,000      |   |   | 262,500     |  
|Exploration and Evaluation Assets(note 5)      |   | 78,152,654  |   |   | 88,323,788  |  
|Deposits(note 6)                               |   | 4,906,636   |   |   | 4,854,136   |  
|                                               |   |             |   |   |             |  
|Total
      Assets                             | $ | 89,114,381  |   | $ | 106,301,442 |  
|                                               |   |             |   |   |             |  
|LIABILITIES                                    |   |             |   |   |             |  
|Current                                        |   |             |   |   |             |  
|Accounts payable and accrued
      liabilities | $ | 5,870,254   |   | $ | 8,794,157   |  
|Short-term loan
      (note 7)                 |   | 5,338,312   |   |   | -           |  
|Flow-through premium liabilities (note 12)     |   | 232,613     |   |   | -           |  
|                                               |   | 11,441,179  |   |   | 8,794,157   |  
|                                               |   |             |   |   |             |  
|Lease Obligation                               |   | -           |   |   | 280,606     |  
|                                               |   |             |   |   |             |  
|Total Liabilities                              |   | 11,441,179  |   |   | 9,074,763   |  
|                                               |   |             |   |   |             |  
|SHAREHOLDERS EQUITY                           |   |             |   |   |             |  
|Share Capital(note 8)                          |   | 125,528,040 |   |   | 117,070,689 |  
|Contributed Surplus                            |   | 23,847,997  |   |   | 22,278,360  |  
|Accumulated Other Comprehensive Income         |   | 12,835      |   |   | (166,363    | )
|Deficit                                        |   | (71,715,670 | ) |   | (41,956,007 | )
|                                               |   |             |   |   |             |  
|Total Shareholders Equity                     |   | 77,673,202  |   |   | 97,226,679  |  
|                                               |   |             |   |   |             |  
|Total Liabilities and Shareholders Equity     | $ | 89,114,381  |   | $ | 106,301,442 |  
|                                               |   |             |   |   |             |  
|Subsequent Events(note 14)                     |   |             |   |   |             |  
|Going Concern(note 1)                          |   |             |   |   |             |  

|Approved on behalf of the Board: |  |                        
|-------------------------------- |  | -----------------------
|                                 |  |                        
|Hendrik Van
      Alphen       |  | Stephan Fitch        
|Hendrik Van Alphen, Director     |  | Stephan Fitch, Director

| | See Notes to Consolidated
      Financial Statements | 1
| | ---------------------------------------------------- | -

---

CARDERO RESOURCE CORP.(AN EXPLORATION STAGE
COMPANY)Consolidated Statements of Loss(Expressed in
Canadian Dollars) Years Ended October 31

|                                                                                                                               |   | 2013        |   |   | 2012        |   |   | 2011        |  
|------------------------------------------------------------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Administrative Expenses                                                                                                        |   |             |   |   |             |   |   |             |  
|Accounts receivable write-off                                                                                                  |   | 229,047     |   |   | 132,245     |   |   | -           |  
|Consulting fees (notes 8 and 9)                                                                                                |   | 1,517,453   |   |   | 1,071,977   |   |   | 1,324,798   |  
|Corporate development                                                                                                          |   | 266,723     |   |   | 368,112     |   |   | 606,239     |  
|Depreciation                                                                                                                   |   | 237,408     |   |   | 349,544     |   |   | 244,935     |  
|Insurance                                                                                                                      |   | 195,431     |   |   | 109,318     |   |   | 108,928     |  
|Investor relations (note 8)                                                                                                    |   | 143,355     |   |   | 429,302     |   |   | 650,779     |  
|Office costs                                                                                                                   |   | 794,124     |   |   | 970,157     |   |   | 736,844     |  
|Professional fees (notes 8 and 9)                                                                                              |   | 1,963,715   |   |   | 1,806,456   |   |   | 977,197     |  
|Property evaluations                                                                                                           |   | 172,810     |   |   | 603,819     |   |   | 3,610,508   |  
|Regulatory and transfer agent fees                                                                                             |   | 144,041     |   |   | 237,972     |   |   | 221,064     |  
|Salaries and benefits (notes 8
      and 9)                                                                                    |   | 3,001,438   |   |   | 5,419,163   |   |   | 4,286,210   |  
|Travel                                                                                                                         |   | 276,024     |   |   | 769,827     |   |   | 225,639     |  
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Loss Before
      Other Items and Income Taxes                                                                                 |   | (8,941,569  | ) |   | (12,267,892 | ) |   | (12,993,141 | )
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Other Items                                                                                                                    |   |             |   |   |             |   |   |             |  
|Other income                                                                                                                   |   | 293,338     |   |   | 40,143      |   |   | -           |  
|Foreign exchange gain (loss)                                                                                                   |   | (293,351    | ) |   | (94,484     | ) |   | 984,660     |  
|Interest income (expense), net
      of bank charges                                                                           |   | (1,389,964  | ) |   | 149,434     |   |   | 1,659,273   |  
|Realized (loss) gain on available-for-sale
      investments (note 4)                                                          |   | (39,562     | ) |   | 9,486,396   |   |   | 14,245,612  |  
|Unrealized loss on derivative
      investment (note 4)                                                                        |   | (407,487    | ) |   | (754,917    | ) |   | (3,252,256  | )
|Impairment losses on available-for-sale
      investments (note 4)                                                             |   | (1,437,030  | ) |   | (3,767,563  | ) |   | (11,394,818 | )
|Impairment losses on Due from
      related parties                                                                            |   | (198,239    | ) |   | (1,112,726  | ) |   | -           |  
|Impairment losses on Property Plant and
      Equipment                                                                        |   | (389,487    | ) |   | -           |   |   | -           |  
|Write-off exploration and
      evaluation assets                                                                              |   | (16,447,113 | ) |   | (3,554,667  | ) |   | (12,206,614 | )
|Loss on asset disposal                                                                                                         |   | (10,855     | ) |   | -           |   |   | -           |  
|Gain (loss) on loan settlement
      (note 9(e) and 7 )                                                                        |   | (686,531    | ) |   | 1,368,953   |   |   |             |  
|Gain on the reclassification of investments
      from equity investments to
               resource related
      investments |   | -           |   |   | -           |   |   | 3,019,523   |  
|Loss on equity investments                                                                                                     |   | -           |   |   | -           |   |   | (793,194    | )
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|                                                                                                                               |   | (21,006,281 | ) |   | 1,760,569   |   |   | (7,737,814  | )
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Loss Before Income Taxes                                                                                                       |   | (29,947,850 | ) |   | (10,507,323 | ) |   | (20,730,955 | )
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Income Taxes                                                                                                                   |   |             |   |   |             |   |   |             |  
|Deferred recovery
      (expense)                                                                                              |   | 188,187     |   |   | (1,086,776  | ) |   | (4,417,922  | )
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Net Loss for Year                                                                                                              |   | (29,759,663 | ) |   | (11,594,099 | ) |   | (25,148,877 | )
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Basic and Diluted Loss Per Share                                                                                               | $ | (0.27       | ) | $ | (0.13       | ) | $ | (0.36       | )
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Weighted Average Number of Shares Outstanding                                                                                  |   | 109,157,361 |   |   | 91,537,423  |   |   | 68,988,456  |  

| | See Notes to Consolidated
          Financial Statements | 2
| | -------------------------------------------------------- | -

---

CARDERO RESOURCE CORP.(AN EXPLORATION STAGE
COMPANY)Consolidated Statements of Comprehensive Loss(Expressed in Canadian Dollars) Years Ended October 31

|                                                                         |   | 2013        |   |   | 2012        |   |   | 2011        |  
|------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                         |   |             |   |   |             |   |   |             |  
|Net Loss for Year                                                        | $ | (29,759,663 | ) | $ | (11,594,099 | ) | $ | (25,148,877 | )
|                                                                         |   |             |   |   |             |   |   |             |  
|Other comprehensive income (loss), net of
      deferred taxes           |   |             |   |   |             |   |   |             |  
|Exchange differences on translation of foreign operations                |   | 165,688     |   |   | (59,733     | ) |   | (88,920     | )
|Other comprehensive income (loss) on available-for-sale
      securities |   | 13,510      |   |   | (7,895,509  | ) |   | (23,262,908 | )
|                                                                         |   |             |   |   |             |   |   |             |  
|Other Comprehensive Loss for the Year, net of deferred
      taxes       |   | 179,198     |   |   | (7,955,242  | ) |   | (23,351,828 | )
|                                                                         |   |             |   |   |             |   |   |             |  
|Comprehensive Loss for the Year                                          | $ | (29,580,465 | ) | $ | (19,549,341 | ) | $ | (48,500,705 | )

| | See Notes to Consolidated
          Financial Statements | 3
| | -------------------------------------------------------- | -

---

|CARDERO RESOURCE CORP.                         
|-----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                 
|Consolidated Statements of Shareholders Equity
|(Expressed in Canadian Dollars)                

|                                                                     |  | Share Capital |  |   |             |   |   |             |   |   | Functional  |   |   | Available-  |   |   | Total             |  
|-------------------------------------------------------------------- |  | ------------- |  | - | ----------- | - | - | ----------- | - | - | ----------- | - | - | ----------- | - | - | ----------------- | -
|                                                                     |  |               |  |   |             |   |   |             |   |   | Contributed |   |   | Currency    |   |   | **for-** **Sale** |  
|                                                                     |  | Shares        |  |   | Amount      |   |   | Deficit     |   |   | Surplus     |   |   | Translation |   |   | Investments       |  
|                                                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Balance, November 1, 2010                                            |  | 58,373,302    |  | $ | 69,890,947  |   | $ | (5,213,031  | ) | $ | 14,726,585  |   | $ | -           |   | $ | 31,140,70         |  
|                                                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Net
      loss for the year                                          |  | -             |  |   | -           |   |   | (25,148,877 | ) |   | -           |   |   | -           |   |   |                   |  
|Other comprehensive
      income                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Unrealized loss on available-for-sale
      investments              |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | -           |   |   | (7,220,44         |  
|Transfer to income of realized gain on sale investments              |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | -           |   |   | (10,035,52        |  
|Transfer to income for impairment losses on
      investments        |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   | (6,006,93         |  
|Functional currency translation                                      |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | (88,920     |   |   |                   |  
|Shares issued for cash                                               |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Exercise options                                                     |  | 840,000       |  |   | 1,026,150   |   |   | -           |   |   | -           |   |   | -           |   |   |                   |  
|Exercise warrants                                                    |  | 443,800       |  |   | 171,718     |   |   | -           |   |   | -           |   |   | -           |   |   |                   |  
|Shares issued for
      non-cash                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Reclassification of contributed surplus on
      exercise of options |  | -             |  |   | 556,406     |   |   | -           |   |   | (556,406    | ) |   | -           |   |   |                   |  
|Reclassification of contributed surplus on exercise of warrants      |  | -             |  |   | 496,398     |   |   | -           |   |   | (496,398    | ) |   | -           |   |   |                   |  
|Acquisition of Coalhunter                                            |  | 23,397,002    |  |   | 35,095,503  |   |   | -           |   |   | 4,354,140   |   |   | -           |   |   |                   |  
|Share-based payments                                                 |  | -             |  |   | -           |   |   | -           |   |   | 1,748,064   |   |   | -           |   |   |                   |  
|                                                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Balance, October
      31, 2011                                      |  | 83,054,104    |  |   | 107,237,122 |   |   | (30,361,908 | ) |   | 19,775,985  |   |   | (88,920     | ) |   | 7,877,799         |  
|                                                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Net loss for the
      year                                          |  | -             |  |   | -           |   |   | (11,594,099 | ) |   | -           |   |   | -           |   |   | -                 |  
|Other comprehensive income                                           |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Unrealized loss on available-for-sale investments                    |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | -           |   |   | (17,710           | )
|Transfer to income of realized gain on sale
      of investments     |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | -           |   |   | (7,877,799        | )
|Transfer to income
      for impairment losses on investments        |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Functional currency translations                                     |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | (59,733     | ) |   | -                 |  
|Shares issued for
      cash                                         |  | 8,029,750     |  |   | 7,628,263   |   |   | -           |   |   | -           |   |   | -           |   |   | -                 |  
|Private placement                                                    |  | -             |  |   | (699,257    | ) |   | -           |   |   | 699,257     |   |   | -           |   |   | -                 |  
|Allocation of proceeds to warrants                                   |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | -           |   |   | -                 |  
|Exercise warrants                                                    |  | 1,332,600     |  |   | 457,219     |   |   | -           |   |   | -           |   |   | -           |   |   | -                 |  
|Shares issued for
      non-cash                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Property acquisition (note 5(e))                                     |  | 1,000,000     |  |   | 900,000     |   |   | -           |   |   | -           |   |   | -           |   |   | -                 |  
|Reclassification of contributed surplus on exercise of warrants      |  | -             |  |   | 1,547,342   |   |   | -           |   |   | (1,547,342  | ) |   | -           |   |   | -                 |  
|Share-based payments                                                 |  | -             |  |   | -           |   |   | -           |   |   | 3,350,460   |   |   | -           |   |   | -                 |  
|                                                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Balance, October 31, 2012                                            |  | 93,416,454    |  | $ | 117,070,689 |   | $ | (41,956,007 | ) | $ | 22,278,360  |   | $ | (148,653    | ) | $ | (17,710           | )
|                                                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Net
      loss for the year                                          |  | -             |  |   | -           |   |   | (29,759,663 | ) |   | -           |   |   | -           |   |   | -                 |  
|Other comprehensive
      income                                     |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Unrealized loss on available-for-sale
      investments              |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | -           |   |   | 13,510            |  
|Functional currency translation                                      |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | 165,688     |   |   | -                 |  
|Shares issued for cash                                               |  |               |  |   |             |   |   |             |   |   |             |   |   |             |   |   |                   |  
|Private placement                                                    |  | 16,439,816    |  |   | 7,277,903   |   |   | -           |   |   | -           |   |   | -           |   |   | -                 |  
|Exercise warrants                                                    |  | 480,000       |  |   | 60,000      |   |   | -           |   |   | -           |   |   | -           |   |   | -                 |  
|Exercise options                                                     |  | 200,000       |  |   | 12,500      |   |   | -           |   |   | -           |   |   | -           |   |   | -                 |  
|Share issue costs                                                    |  | -             |  |   | (466,452    | ) |   | -           |   |   | 47,973      |   |   | -           |   |   | -                 |  

| | See Notes to Consolidated
      Financial Statements | 4
| | ---------------------------------------------------- | -

---

|                                                                      |  | Share Capital |  |   |             |  |   |             |   |   | Functional  |   |   | Available-  |  |   | Total             |  
|--------------------------------------------------------------------- |  | ------------- |  | - | ----------- |  | - | ----------- | - | - | ----------- | - | - | ----------- |  | - | ----------------- | -
|                                                                      |  |               |  |   |             |  |   |             |   |   | Contributed |   |   | Currency    |  |   | **for-** **Sale** |  
|                                                                      |  | Shares        |  |   | Amount      |  |   | Deficit     |   |   | Surplus     |   |   | Translation |  |   | Investments       |  
|Shares issued for non-cash                                            |  |               |  |   |             |  |   |             |   |   |             |   |   |             |  |   |                   |  
|Property acquisition                                                  |  | 900,000       |  |   | 203,000     |  |   | -           |   |   | -           |   |   | -           |  |   | -                 |  
|Short-term loan                                                       |  | 2,000,000     |  |   | 420,000     |  |   | -           |   |   | -           |   |   | -           |  |   | -                 |  
|Reclassification of contributed surplus on
      exercise of warrants |  | -             |  |   | 662,400     |  |   | -           |   |   | (662,400    | ) |   | -           |  |   | -                 |  
|Reclassification of contributed surplus on
      exercise of options  |  | -             |  |   | 288,000     |  |   | -           |   |   | (288,000    | ) |   | -           |  |   | -                 |  
|Short-term loan warrants                                              |  | -             |  |   | -           |  |   | -           |   |   | 1,801,027   |   |   | -           |  |   | -                 |  
|Share-based payments                                                  |  | -             |  |   | -           |  |   | -           |   |   | 671,037     |   |   | -           |  |   | -                 |  
|                                                                      |  |               |  |   |             |  |   |             |   |   |             |   |   |             |  |   |                   |  
|Balance, October 31, 2013                                             |  | 113,436,270   |  | $ | 125,528,040 |  | $ | (71,715,670 | ) | $ | 23,847,997  |   | $ | 17,035      |  | $ | (4,200            | )

| | See Notes to Consolidated
      Financial Statements | 5
| | ---------------------------------------------------- | -

---

CARDERO RESOURCE CORP.(AN EXPLORATION STAGE
COMPANY)Consolidated Statements of Cash Flows(Expressed in
Canadian Dollars) Years ended October 31

|                                                                                                                               |   | 2013        |   |   | 2012        |   |   | 2011        |  
|------------------------------------------------------------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Operating Activities                                                                                                           |   |             |   |   |             |   |   |             |  
|Net loss for the year                                                                                                          | $ | (29,759,663 | ) | $ | (11,594,099 | ) | $ | (25,148,877 | )
|Items not involving cash                                                                                                       |   |             |   |   |             |   |   |             |  
|Accounts receivable write-off                                                                                                  |   | 229,047     |   |   | 132,245     |   |   | -           |  
|Depreciation                                                                                                                   |   | 237,408     |   |   | 349,544     |   |   | 244,935     |  
|Share-based payments (note 9)                                                                                                  |   | 671,036     |   |   | 3,350,460   |   |   | 1,301,935   |  
|Accretion expense                                                                                                              |   | 748,729     |   |   | -           |   |   | -           |  
|Realized loss (gain) on sale of
      available-for-sale investments (note 4)                                                  |   | 39,562      |   |   | (9,486,396  | ) |   | (14,245,612 | )
|Impairment losses on
      available-for-sale investments (note 4)                                                             |   | 1,437,030   |   |   | 3,767,563   |   |   | 11,394,818  |  
|Impairment losses on due from related
      parties (note 9(c))                                                                |   | 198,239     |   |   | 1,112,726   |   |   | -           |  
|Write-off of
      exploration and evaluation assets                                                                           |   | 16,447,113  |   |   | 3,554,667   |   |   | 12,206,614  |  
|Amortization of fair value of warrants
      to interest income                                                                |   | -           |   |   | -           |   |   | (1,287,909  | )
|Impairment losses on
      property plant and equipment                                                                        |   | 389,487     |   |   | -           |   |   | -           |  
|Gain on loan settlement (note 9(e))                                                                                            |   | -           |   |   | (1,368,953  | ) |   | -           |  
|Gain on the
      reclassification of investments from equity investments
               to resource related
      investments |   | -           |   |   | -           |   |   | (3,019,523  | )
|Loss on equity investments                                                                                                     |   | -           |   |   | -           |   |   | 793,194     |  
|Unrealized loss on
      derivative investments (note 4)                                                                       |   | 407,487     |   |   | 754,917     |   |   | 3,252,256   |  
|Shares issued for financing                                                                                                    |   | 420,000     |   |   | -           |   |   | -           |  
|Loss on assets sold                                                                                                            |   | 10,855      |   |   | -           |   |   | -           |  
|Deferred income taxes expense                                                                                                  |   | (188,187    | ) |   | 1,086,776   |   |   | 3,558,763   |  
|Unrealized foreign
      exchange loss (gain)                                                                                  |   | 49,906      |   |   | -           |   |   | (1,245,680  | )
|Foreign exchange loss on cash                                                                                                  |   | (7,316      | ) |   | (4,607      | ) |   | 1,369,756   |  
|Changes in non-cash working
      capital items                                                                                |   |             |   |   |             |   |   |             |  
|Prepaid expenses                                                                                                               |   | 372,191     |   |   | (241,370    | ) |   | (15,532     | )
|Accounts payable and
      accrued liabilities                                                                                 |   | 1,987,111   |   |   | 136,329     |   |   | (163,112    | )
|Interest payable                                                                                                               |   | 141,693     |   |   | -           |   |   | -           |  
|Income taxes payable                                                                                                           |   | -           |   |   | -           |   |   | (25,601,634 | )
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Cash Used in Operating Activities                                                                                              |   | (6, 168,271 | ) |   | (8,450,198  | ) |   | (36,605,608 | )
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Investing Activities                                                                                                           |   |             |   |   |             |   |   |             |  
|Acquisition of Coalhunter Mining Corporation                                                                                   |   | -           |   |   | -           |   |   | 1,806,655   |  
|Expenditures on exploration
      and evaluation assets                                                                        |   | (10,621,057 | ) |   | (28,614,484 | ) |   | (6,187,340  | )
|Increase in deposits (note 6)                                                                                                  |   | (52,500     | ) |   | (4,739,136  | ) |   | (110,000    | )
|Proceeds from sale of
      investments                                                                                        |   | 198,029     |   |   | 31,300,914  |   |   | 12,250,273  |  
|Purchase of investments                                                                                                        |   | -           |   |   | (262,113    | ) |   | (3,840,625  | )
|Purchase of equity investments                                                                                                 |   | -           |   |   | -           |   |   | (3,882,443  | )
|Purchase of property, plant and equipment                                                                                      |   | (51,599     | ) |   | (576,726    | ) |   | (771,028    | )
|Loan receivable                                                                                                                |   | -           |   |   | 4,886,633   |   |   | (8,580,096  | )
|Accounts receivable                                                                                                            |   | 1,133,549   |   |   | (5,080,819  | ) |   | (308,776    | )
|Due from related parties                                                                                                       |   | 168,242     |   |   | (397,295    | ) |   | 122,507     |  
|                                                                                                                               |   |             |   |   |             |   |   |             |  
|Cash Used in Investing Activities                                                                                              |   | (9,225,336  | ) |   | (3,483,026  | ) |   | (9,500,873  | )

| | See Notes to Consolidated
          Financial Statements | 6
| | -------------------------------------------------------- | -

---

|                                                         |   | 2013       |   |   | 2012       |   |   | 2011        |  
|-------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ----------- | -
|Financing Activities                                     |   |            |   |   |            |   |   |             |  
|Proceeds from shares issued, net of issuance
      costs |   | 7,770,459  |   |   | 8,085,482  |   |   | 1,197,868   |  
|Share issuance costs                                     |   | (418,479   | ) |   | -          |   |   | -           |  
|Short term loan (note 7)                                 |   | 11,317,885 |   |   | -          |   |   | -           |  
|Short term loan repayment (note 7)                       |   | (5,134,795 | ) |   | -          |   |   | -           |  
|                                                         |   |            |   |   |            |   |   |             |  
|Cash Provided by Financing Activities                    |   | 13,955,070 |   |   | 8,085,482  |   |   | 1,197,868   |  
|                                                         |   |            |   |   |            |   |   |             |  
|Effect of Foreign Exchange on Cash                       |   | 7,316      |   |   | 4,607      |   |   | (1,369,756  | )
|                                                         |   |            |   |   |            |   |   |             |  
|Decrease in Cash and Cash
      Equivalents              |   | (1,851,222 | ) |   | (3,843,135 | ) |   | (46,278,369 | )
|Cash and Cash
      Equivalents, Beginning of the Year   |   | 2,142,499  |   |   | 5,985,634  |   |   | 52,264,003  |  
|Cash and Cash Equivalents, End of the Year               | $ | 291,277    |   | $ | 2,142,499  |   | $ | 5,985,634   |  

Supplemental cash flow information(note 13)

| | See Notes to Consolidated
      Financial Statements | 7
| | ---------------------------------------------------- | -

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|1. | NATURE OF OPERATIONS AND GOING CONCERN                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Cardero Resource Corp. (Cardero or the Company) and
      its subsidiaries are engaged in the exploration of mineral properties,
      primarily in Canada, United States, Ghana, Peru, Mexico and Argentina. The
      Company considers itself to be an exploration stage company.                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company is a public company with shares listed on the
      TSX Exchange and the Frankfurt Stock Exchange. The head office, principal
      address and records office of the Company are located at 1177 West
      Hastings Street, Suite 2300, Vancouver, British Columbia, Canada, V6E
      2K3.                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Going Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | While these consolidated financial statements have been
      prepared on the basis that the Company will continue as a going concern,
      which assumes that the Company will be able to meet its commitments,
      continue operations, realize its assets and discharge its liabilities in
      the normal course of business for the foreseeable future, the following
      events and conditions that raise substantial doubt on the validity of that
      assumption:

| |  | During the year ended October 31, 2013, the Company
      incurred a loss of $29,759,663, and as at October 31, 2013 had an
      accumulated deficit of $71,715,670 and a working capital deficit of
      $6,498,875;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Significant advance royalty payments on the Company's
      Carbon Creek Property fall due within the next 12 months (Note 5(e)); and                                                                                  
| |  | Additional sources of financing are required to enable
      the Company to meet its existing obligations.                                                                                                             

|   | During the year ended October 31, 2013, the Company
      closed a $USD 5.7 million private placement of senior secured notes and
      the proceeds were used to repay the Luxor Capital Group, LP indebtedness
      (Note 7). Subsequent to year end, the Company secured an additional $USD
      5.0 million line of credit (Note 14).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company will use these funds to settle outstanding
      payables, general working capital and property expenditures. The Company
      has also made arrangements with creditors on the settlement of outstanding
      payable (Note 14).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Notwithstanding these additional sources of funding and
      settlement of liabilities, further funding is required in order for the
      Company to meet its existing obligations, commitments and fund ongoing
      exploration. While the Company has been successful in obtaining its
      required funding in the past, there is no assurance that sufficient funds
      will be available to the Company in the future. The Company has no
      assurance that such financing will be available or be available on
      favorable terms. Factors that could affect the availability of financing
      include the progress and results of the Companys exploration properties
      and its permitting application, the state of international debt and equity
      markets, investor perceptions and expectations and the global financial
      and iron ore and metallurgical coal markets. There can be no assurance the
      Company will be successful in its endeavour to obtain additional
      financing. These consolidated financial statements do not reflect
      adjustments in the carrying values of the assets and liabilities, the
      reported revenues and expenses, and the balance sheet classifications
      used, that would be necessary if the company were unable to realize its
      assets and settle its liabilities in the normal course of operations. Such
      adjustments could be material.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

8

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|2. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------
|   |                                              
|   | (b)                                          
|   |                                              
|   |                                              
|   |                                              
|   | (c)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   | (d)                                          
|   |                                              
|   |                                              

9

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|2. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------
|   |                                              
|   | (e)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              

| | Computer software              | - 100% declining balance basis                             
| | ------------------------------ | -----------------------------------------------------------
| | Computers and Office equipment | - 20% to 30% declining balance
      basis                 
| | Metallurgy lab                 | - over 5 years on a straight-line
      basis              
| | Leasehold improvements         | - over the term of the lease on a
      straight-line basis

| |     | Depreciation methods, useful lives and residual values
      are reviewed at each financial year-end and adjusted if
  appropriate.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                    
| | (f) | Investments                                                                                                                        
| |     |                                                                                                                                    
| |     | i)                                                                                                                                 
| |     |                                                                                                                                    
| |     | ii)                                                                                                                                
| |     |                                                                                                                                    
| | (g) | Exploration and evaluation assets                                                                                                  
| |     |                                                                                                                                    
| |     | All of the Companys projects are currently in the
      exploration and evaluation phase.                                         
| |     |                                                                                                                                    
| |     | Pre-exploration costs                                                                                                              
| |     |                                                                                                                                    
| |     | Pre-exploration costs are expensed in the period in which
      they are incurred.                                                 

10

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|2. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------
|   |                                              
|   | (g)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   | (h)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              

11

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|2. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------
|   |                                              
|   | (i)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              

| |  | Assets and liabilities are
      translated at year-end exchange rates prevailing at that reporting date;
      and
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | Income and expenses are
      translated at monthly average exchange rates during the year.                        

| |     | Exchange differences arising on translation of such
      foreign operations are transferred directly to the Companys exchange
      difference on translating foreign operations on the Statement of
      Comprehensive Loss and are reported as a separate component of
      shareholders equity in other comprehensive income (loss).                                                                                                                                                                                 
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (j) | Share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Where equity-settled share options are awarded to
      employees, the fair value of the options at the date of grant is charged
      to the Consolidated Statement of Comprehensive Loss over the vesting
      period. Performance vesting conditions are taken into account by adjusting
      the number of equity instruments expected to vest at each reporting date
      so that, ultimately, the cumulative amount recognized over the vesting
      period is based on the number of options that eventually vest.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Where the terms and conditions of options are modified
      before they vest, the increase in the fair value of the options, measured
      immediately before and after the modification, is also charged to the
      consolidated Statement of Comprehensive Income (Loss) over the remaining
      vesting period.                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Where equity instruments are granted to non-employees,
      they are recorded at the fair value of the goods or services received in
      the consolidated Statement of Comprehensive Income (Loss), unless they are
      related to the issuance of shares. Amounts related to the issuance of
      shares are recorded as a reduction of share
capital.                                                                                                                                                                

12

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|2. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------
|   |                                              
|   | (j)                                          
|   |                                              
|   |                                              
|   |                                              
|   | (k)                                          
|   |                                              
|   |                                              
|   |                                              
|   | (l)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   | (m)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   | (n)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              

13

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|2. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------
|   |                                              
|   | (n)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              

14

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|2. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------
|   |                                              
|   | (j)                                          
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              
|   |                                              

15

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|3. | PROPERTY, PLANT AND
EQUIPMENT
|-- | -----------------------------

| |                                  |   | Metallurgy Lab |  |   | Leasehold
      Improvements |  |   | Other     |   |   | Total     |  
| | -------------------------------- | - | -------------- |  | - | ---------------------------- |  | - | --------- | - | - | --------- | -
| |                                  |   |                |  |   |                              |  |   |           |   |   |           |  
| | Cost                             |   |                |  |   |                              |  |   |           |   |   |           |  
| | Balance, October 31, 2011        | $ | 516,877        |  | $ | 345,068                      |  | $ | 608,609   |   | $ | 1,470,554 |  
| | Additions                        |   | 28,709         |  |   | 33,116                       |  |   | 794,651   |   |   | 856,476   |  
| | Currency translation adjustments |   | 681            |  |   | -                            |  |   | -         |   |   | 681       |  
| |                                  |   |                |  |   |                              |  |   |           |   |   |           |  
| | Balance, October 31, 2012        | $ | 546,267        |  | $ | 378,184                      |  | $ | 1,403,260 |   | $ | 2,327,711 |  
| | Additions                        |   | 47,192         |  |   | -                            |  |   | 4,407     |   |   | 51,599    |  
| | Disposals                        |   | -              |  |   | -                            |  |   | (313,258  | ) |   | (313,258  | )
| | Impairment                       |   | -              |  |   | -                            |  |   | (483,295  | ) |   | (483,295  | )
| | Currency translation adjustments |   | 26,263         |  |   | -                            |  |   | -         |   |   | 26,263    |  
| |                                  |   |                |  |   |                              |  |   |           |   |   |           |  
| | Balance,
      October 31, 2013  | $ | 619,722        |  | $ | 378,184                      |  | $ | 611,114   |   | $ | 1,609,020 |  
| |                                  |   |                |  |   |                              |  |   |           |   |   |           |  
| |                                  |   |                |  |   |                              |  |   |           |   |   |           |  
| | Accumulated depreciation         |   |                |  |   |                              |  |   |           |   |   |           |  
| | Balance, October 31, 2011        |   | 103,375        |  |   | 168,924                      |  |   | -         |   |   | 552,348   |  
| | Depreciation for the year        |   | 106,689        |  |   | 62,628                       |  |   | 8,142     |   |   | 356,832   |  
| | Currency translation adjustments |   | 1,403          |  |   | -                            |  |   | -         |   |   | 5,768     |  
| |                                  |   |                |  |   |                              |  |   |           |   |   |           |  
| | Balance, October 31, 2012        | $ | 211,467        |  | $ | 231,552                      |  | $ | 471,929   |   | $ | 914,948   |  
| | Depreciation for the year        |   | 116,908        |  |   | 15,293                       |  |   | 145,737   |   |   | 277,938   |  
| | Disposal                         |   |                |  |   |                              |  |   | (66,814   | ) |   | (66,814   | )
| | Impairment                       |   |                |  |   |                              |  |   | (93,808   | ) |   | (93,808   | )
| | Currency translation adjustments |   | 15,715         |  |   | -                            |  |   | -         |   |   | 15,715    |  
| |                                  |   |                |  |   |                              |  |   |           |   |   |           |  
| | Balance,
      October 31, 2013  | $ | 344,090        |  | $ | 246,845                      |  | $ | 457,044   |   | $ | 1,047,979 |  
| |                                  |   |                |  |   |                              |  |   |           |   |   |           |  
| | Carrying amounts                 |   |                |  |   |                              |  |   |           |   |   |           |  
| | At October 31, 2011              | $ | 413,502        |  | $ | 176,144                      |  | $ | -         |   | $ | 918,206   |  
| | At October 31, 2012              | $ | 334,800        |  | $ | 146,632                      |  | $ | 286,770   |   | $ | 1,412,763 |  
| | At October 31, 2013              | $ | 275,632        |  | $ | 131,339                      |  | $ | 154,070   |   | $ | 561,041   |  

|   | The Company operates in one industry segment, the mineral
      resources industry, and in six geographical segments, Canada, United
      States, Ghana, Peru, Mexico, and Argentina. All assets are located in
      Canada except the Metallurgy laboratory, $275,630 (2012: $334,800) which
      is located in the United State and included in Other, $nil (2012:
      $403,264) which is located in Ghana..
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                    
|4. | INVESTMENTS                                                                                                                                                                                                                                                                                                                                                                                                        

Shares
    
    
    WarrantsOctober 31, 2013
    
    Number
    
    
    Fair Value
    
    
    Number
    
    
    Fair Value
    
    
    TotalTrevali Mining Corporation (Trevali)
    
    -
    
    $
    -
    
    
    2,074,761
    
    $
    87,470
    
    $
    87,470Wealth Minerals
      Ltd. (Wealth)
    
    5,022,806
    
    
    150,684
    
    
    -
    
    
    -
    
    
    150,684(1)Xiana Mining Inc. (Xiana)
    
    126,800
    
    
    17,752
    
    
    -
    
    
    -
    
    
    17,752Indico Resources
      Ltd. (Indico)
    
    50,000
    
    
    5,750
    
    
    -
    
    
    -
    
    
    5,750Balmoral Resources Ltd. (Balmoral)
    
    8,000
    
    
    3,040
    
    
    -
    
    
    -
    
    
    3,040Abzu Gold Inc.
      (Abzu Gold)
    
    9,234,007
    
    
    184,680
    
    
    -
    
    
    -
    
    
    184,680Artha Resources Corporation (Artha)
    
    2,150,000
    
    
    32,250
    
    
    -
    
    
    -
    
    
    32,250Ethos Capital Corp.(Ethos)
    
    150,000
    
    
    15,120
    
    
    -
    
    
    -
    
    
    15,120$
    409,276
    
    
    
    
    $
    87,470
    
    $
    496,746


16

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|4. | INVESTMENTS
(Continued)
|-- | -----------------------

Shares
    
    
    WarrantsOctober 31, 2012
    
    Number
    
    
    Fair Value
    
    
    Number
    
    
    Fair Value
    
    
    TotalTrevali
    
    -
    
    $
    -
    
    
    2,074,761
    
    $
    494,957
    
    $
    494,957Wealth
    
    5,022,806
    
    
    577,623
    
    
    -
    
    
    -
    
    
    577,623Xiana
    
    2,536,000
    
    
    202,880
    
    
    -
    
    
    -
    
    
    202,880Indico
    
    50,000
    
    
    11,000
    
    
    -
    
    
    -
    
    
    11,000Balmoral
    
    240,000
    
    
    223,200
    
    
    -
    
    
    -
    
    
    223,200Abzu Gold
    
    9,234,007
    
    
    923,401
    
    
    -
    
    
    -
    
    
    923,401Artha
    
    2,150,000
    
    
    96,750
    
    
    -
    
    
    -
    
    
    96,750Ethos
    
    150,000
    
    
    42,000
    
    
    -
    
    
    -
    
    
    42,000\
    
    
    
    $
    2,076,854
    
    
    
    
    $
    494,957
    
    $
    2,571,811


| | (1) | During the year ended October 31, 2013 Dorato Resources
      Inc. changed its name to Xiana Mining Inc. and completed a 20  1 share
      consolidation.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

All the resource related companies are
considered to be related parties, with the exception of Trevali, Xiana, Abzu and
Artha by virtue of having directors and/or officers in common. All investments
in shares are classified as available-for-sale under the financial instruments
classification except for the investment in Ethos, which is classified as fair
value through profit or loss. As investments in warrants are considered to be
derivative instruments, they are by definition classified as fair value through
profit or loss.

During the year ended October 31, 2013,
the Company did not acquire any additional investments (2012 - $262,113) (2011 -
$3,840,623). The Company sold investments for gross proceeds of $198,029 (2012 -
$31,300,914) (2011  $12,250,273) at a cost of $237,590 (2012 - $21,814,518)
(2011 - $3,416,869) for net (loss) gains on sale of $(39,562) (2012 -
$9,486,396) (2011 - $14,245,612). Impairment losses on investments amounted to
$1,437,030 (2012 - $3,767,563) (2011 - $11,394,818).

During the year ended October 31, 2013,
the Company recorded an unrealized loss on the fair value adjustment of
derivatives of $407,487 (2012  unrealized loss of $754,917) (2011 -
$3,252,256). The Company holds 2,074,761 Trevali warrants with an exercise price
of $1.10 which expires on January 31, 2014

17

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|5. | EXPLORATION AND EVALUATION ASSETS                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                      
|   | The Companys capitalized acquisition and exploration
      expenditures on its exploration and evaluation assets are as
    follows:

Mexico
    
    
    Argentina
    
    
    U.S.A.
    
    
    Ghana
    
    
    Canada(note 7(a))
    
    
    (note 7(b))
    
    
    (note 7(c))
    
    
    (note 7(d))
    
    
    (note 7(e))
    
    
    TotalBalance, October 31, 2011
    $
    53,274
    
    $
    2,651,647
    
    $
    3,531,967
    
    $
    -
    
    $
    50,252,000
    
    $
    56,488,888Acquisition costs:Acquisition costs  shares
    
    -
    
    
    -
    
    
    -
    
    
    900,000
    
    
    -
    
    
    900,000Acquisition costs  cash
    
    1,545
    
    
    28,057
    
    
    59,872
    
    
    5,352,039
    
    
    5,000,000
    
    
    10,441,513Total acquisition costs
    
    1,545
    
    
    28,057
    
    
    59,872
    
    
    6,252,039
    
    
    5,000,000
    
    
    11,341,513Deferred exploration costs:Camp
    
    33,393
    
    
    -
    
    
    18,744
    
    
    1,140,263
    
    
    9,777,358
    
    
    10,969,758Drilling and analysis
    
    357,612
    
    
    1,308
    
    
    44,005
    
    
    3,224,330
    
    
    5,069,968
    
    
    8,697,223Personnel and geology
    
    61,369
    
    
    -
    
    
    108,200
    
    
    1,264,005
    
    
    3,017,609
    
    
    4,451,183Total exploration costs
    
    452,374
    
    
    1,308
    
    
    170,949
    
    
    5,628,598
    
    
    17,864,935
    
    
    24,118,164Total expenditures for the period
    
    453,919
    
    
    29,365
    
    
    230,821
    
    
    11,880,637
    
    
    22,864,935
    
    
    35,459,677Costs recovered  Exploration
    
    -
    
    
    (8,250
    )
    
    -
    
    
    -
    
    
    -
    
    
    (8,250
    )Write-offs  Acquisition costs
    
    (54,819
    )
    
    (172,948
    )
    
    -
    
    
    (198,911
    )
    
    -
    
    
    (426,678
    )Write-offs  Exploration costs
    
    (452,374
    )
    
    (2,499,814
    )
    
    -
    
    
    (175,805
    )
    
    -
    
    
    (3,127,993
    )Total write-offs
    
    (507,193
    )
    
    (2,672,762
    )
    
    -
    
    
    (374,716
    )
    
    -
    
    
    (3,554,671
    )Currency translation adjustments
    
    -
    
    
    -
    
    
    7,439
    
    
    (69,295
    )
    
    -
    
    
    (61,856
    )Balance, October 31, 2012
    $
    -
    
    $
    -
    
    $
    3,770,227
    
    $
    11,436,626
    
    $
    73,116,935
    
    $
    88,323,788Acquisition costs:Acquisition costs  shares
    
    -
    
    
    -
    
    
    -
    
    
    135,000
    
    
    68,000
    
    
    203,000Acquisition costs  cash
    
    -
    
    
    -
    
    
    557
    
    
    635,500
    
    
    5,625,760
    
    
    6,261,817Total acquisition costs
    
    -
    
    
    -
    
    
    557
    
    
    770,500
    
    
    5,693,760
    
    
    6,464,817Deferred exploration costs:Camp
    
    -
    
    
    -
    
    
    -
    
    
    146,891
    
    
    322,482
    
    
    469,373Drilling and analysis
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    410,761
    
    
    410,761Personnel and geology
    
    -
    
    
    -
    
    
    4,470
    
    
    248,545
    
    
    2,342,717
    
    
    2,595,732Total exploration costs
    
    -
    
    
    -
    
    
    4,470
    
    
    395,436
    
    
    3,075,960
    
    
    3,475,866Total expenditures for the period
    
    -
    
    
    -
    
    
    5,027
    
    
    1,165,936
    
    
    8,769,720
    
    
    9,940,683-
    
    
    -Costs recovered  Exploration
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (3,734,000
    )
    
    (3,734,000
    )-
    
    
    -Write-offs  Acquisition costs
    
    -
    
    
    -
    
    
    (353,540
    )
    
    (6,820,013
    )
    
    -
    
    
    (7,173,553
    )Write-offs  Exploration costs
    
    -
    
    
    -
    
    
    (3,421,714
    )
    
    (5,851,846
    )
    
    -
    
    
    (9,273,560
    )Total write-offs
    
    -
    
    
    -
    
    
    (3,775,254
    )
    
    (12,671,859
    )
    
    -
    
    
    (16,447,113
    )Currency translation adjustments
    
    -
    
    
    -
    
    
    -
    
    
    69,296
    
    
    -
    
    
    69,296Balance, October 31, 2013
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    78,152,654
    
    $
    78,152,654


| | (a) | Mexico                                                                                                                                                                                                                       
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                              
| |     | During the year ended October 31, 2012, the Company
      terminated its remaining Mexican property option agreements and wrote off
      costs totalling $507,193 in the consolidated statement of loss.                    
| |     |                                                                                                                                                                                                                              
| | (b) | Argentina                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                              
| |     | During the year ended October 31, 2012, the Company
      determined to cease exploration of their Argentinean mineral properties
      and wrote off costs totalling $2,672,761 in the consolidated statement of
      loss.

18

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|5. | EXPLORATION AND EVALUATION ASSETS
    (Continued)
|-- | -------------------------------------------------
|   |                                                  
|   | (c)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   | (d)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   | (e)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  

19

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|5. | EXPLORATION AND EVALUATION ASSETS
    (Continued)
|-- | -------------------------------------------------

| | (e) | Canada  Carbon Creek Property, British Columbia
      (Continued)
| | --- | ------------------------------------------------------------------

| | i) | Johnson Agreement (continued)
| | -- | -----------------------------

| | - | $75,000 on execution of the Johnson Agreement (paid), an
      additional $275,000 on or before June 24, 2010 (paid) and a final payment
      of $5,000,000 due within four months of the date of issuance of the
      Johnson Licenses (October 14, 2012). As permitted by the Johnson
      Agreement, Cardero Coal extended the deadline for the final payment from
      October 14, 2012 until January 14, 2013 by paying $20,000 per month. The
      deadline was further extended to April 14, 2013 by Cardero Coal paying a
      non-refundable cash deposit of $1,000,000 on January 14, 2013 (paid), plus
      an additional $20,000 per month for each months extension ($60,000 paid
      in total). The deadline was further extended to April 22, 2013 upon
      payment of a further non-refundable cash deposit of $1,000,000 (paid April
      12, 2013). On April 22, 2013, Cardero Coal exercised the option and paid
      the balance of $3,000,000. Immediately following the exercise of option,
      the coal licenses and other assets of the private company were transferred
      to Cardero Coal and thereby became part of the Carbon Creek Joint Venture;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | issuance of 400,000 common shares (issued),with a fair
      value of $68,000,of the Company concurrently with the $3,000,000 final
      option payment; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | grant of an option to acquire 1,000,000 common shares of
      Cardero Coal at an exercise price of $0.15 per share (granted). The option
      was exercised on March 9, 2011 (prior to the acquisition of Cardero Coal
      by the Company).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | ii. | Burns Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | On June 15, 2010, Cardero Coal entered into an option
      agreement (Burns Agreement) to acquire a lease of the coal situated on
      10 Crown granted district lots (CGDL) located in the Peace River Land
      District of British Columbia. To exercise its option, Cardero Coal must
      pay $6,000,000 (paid). Cardero Coal has exercised the option
    agreement.                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Under the lease agreement (Burns Lease), Cardero Coal
      will pay a 5% freight on rail royalty on all coal sold or $2 per metric
      tonne of coal sold, whichever is greater, and 20% on sales for any coal
      substances sold or consumed on the CGDL. On May 1, 2013 the Burns Lease
      was amended to include an Advance Royalty payment to be paid until the
      commencement of the payment of the Royalty. The Advance Royalty is
      non-refundable and is to be deducted from the amount required to be paid
      in respect of the Royalty due. The Advance Royalty amounts and due dates
      are as follows:

| | Date Due                             |   | Amount    | 
| | ------------------------------------ | - | --------- | 
| | June 2, 2013                         | $ | 500,000   | 
| | June 2, 2014                         |   | 2,000,000 | 
| | June 2, 2015                         |   | 3,000,000 | 
| | June 2, 2016 in each year thereafter |   | 3,500,000 | 

All or any portion of the Advanced
Royalty due on June 2, 2013 can be extended to June 2, 2014 by giving proper
notice and paying interest at a rate of 6% per annum on amounts outstanding,
which Cardero Coal has done.

All or any portion of the Advanced
Royalty due on June 2, 2014 can be extended to June 2, 2015 by giving proper
notice and paying interest at a rate of 6% per annum on amounts outstanding.

20

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|5. | EXPLORATION AND EVALUATION ASSETS
    (Continued)
|-- | -------------------------------------------------
|   |                                                  
|   | (e)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  

| | (f) | Title and environmental                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Although the Company has taken steps to verify the title
      to mineral properties in which it has or had a right to acquire an
      interest of such properties, these procedures do not guarantee title
      (whether of the Company or of any underlying vendor(s) from whom the
      Company may be acquiring its interest). Title to mineral properties may be
      subject to unregistered prior agreements or transfers, and may also be
      affected by undetected defects or the rights of indigenous peoples.
      Environmental legislations are becoming increasingly stringent and costs
      and expenses of regulatory compliance are increasing. The impact of new
      and future environmental legislations on the Companys operations may
      cause additional expenses and restrictions. If the restrictions adversely
      affect the scope of exploration and development on the mineral properties,
      the potential for production on the property may be diminished or
      negated.

|6. | DEPOSITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company paid $4,500,000 as a non-refundable
      Commitment Deposit to Ridley Terminals Inc. (the Terminal), pursuant to
      a Terminal Services Agreement dated May 14, 2012 (the Terminal
      Agreement). Pursuant to the Terminal Agreement, the Terminal agrees to
      provide services to the Company consisting of receiving and storing coal
      and loading coal onto ships at the Terminals bulk materials handling and
      loading facilities during the period commencing on January 1, 2014 and
      expiring on December 31, 2028. The Commitment Deposit will be applied
      against the Terminals charges for the shipping of the Companys coal at a
      rate of $1/tonne for the first 4,500,000 tonnes.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Remaining deposits consist of $267,500 paid in the event
      that the Company incurs future reclamation expenditures on Carbon Creek
      project, t and $139,136 for other security
deposits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

21

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|7. | SHORT-TERM LOAN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On April 22, 2013, the Company completed a placement of
      senior secured notes (Luxor Notes) in the aggregate principal amount of
      USD 5,500,000 with certain affiliates of Luxor Capital Group, LP.
      (Luxor). The Luxor Notes had a one year term and were issued at a 9.1%
      discount to net the Company USD 5,000,000 ($5,083,398) with interest
      accruing at the rate of 10% per annum, payable semi-annually (13% after an
      event of default). The Luxor Notes were 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 Luxor Notes could be redeemed by the Company at any time at
      par plus accrued interest. Should there be a change of control of Cardero
      Coal while the Luxor Notes remain outstanding the holders of the Luxor
      Notes would have the right to put the Luxor Notes to the Company for an
      amount equal to 110% of par plus accrued interest.                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | As a bonus for subscribing for and purchasing the Luxor
      Notes, the holders of the Luxor Notes were issued an aggregate of
      2,000,000 common shares of the Company (the Bonus Shares). The Bonus
      Shares are subject to a hold period in Canada until August 25, 2013, plus
      additional restrictions under United States securities laws.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | On August 9, 2013 The Company completed a private
      placement of senior secured notes (Notes) in the aggregate principal
      amount of US$5.7-million with entities controlled by Robert C. Kopple of
      Los Angles, California, US (Lenders). The net proceeds of the notes were
      used to pay the indebtedness owing to Luxor immediately following closing.
      The Company incurred a loss of $686,532 on settlement of the Luxor
      Notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Notes in the amount of US$3.7-million are due no later
      than December 31, 2013, subsequently extended to February 28, 2014 (Note
      14), while US$2-million of the Notes will be due on August 8, 2014.
      Interest will accrue at the rate of 10 per cent per year payable
      quarterly. The 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. Cardero Coal also provided a corporate guarantee. The 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 notes remain outstanding, other than a change of control caused by the
      Lenders or their associates or affiliates, the holders of the notes will
      have the right to put the notes to the Company for an amount equal to 110%
      of par plus accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | As additional consideration for purchasing the Notes, the
      Lenders were issued transferrable warrants to purchase an aggregate of
      28,359,066 common shares of the Company. The warrants have a term of seven
      years, and are exercisable at a price of 9.5 cents. The warrants, and any
      shares issuable on the exercise thereof, will be subject to a hold period
      in Canada of four months from the date of issuance, plus additional
      restrictions under United States securities laws. Assuming the full
      exercise of the warrants, the Lenders, together with their associates and
      affiliates, and including their current shareholdings (but excluding any
      additional common shares which may be purchased by them), would then hold
      approximately 21.763% of the Companys then-issued shares (assuming no
      other share issuances by the Company in the meantime). As this exercise of
      warrants represents a potential change of control, the Company has agreed,
      upon request by the Lenders, to seek shareholder approval to the full
      exercise of the warrants and potential change of control arising
      therefrom. Until such time as the shareholders may approve such change of
      control, the warrants may not be exercised if any such exercise would
      result in the holdings of the Lenders (and their associates or affiliates)
      going over 19.99%.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | At October 31, 2013, short-term loan transactions are as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| |                                   |   | 2013       |  
| | --------------------------------- | - | ---------- | -
| | Short-term loan                   | $ | 6,331,988  |  
| | Warrant                           |   | (1,801,027 | )
| | Interest payable                  |   | 141,693    |  
| | Professional fees                 |   | (83,071    | )
| | Accretion expenses                |   | 748,729    |  
| | Balance at
      October 31, 2013 | $ | 5,338,312  |  

22

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|8. | SHARE CAPITAL
|-- | -------------
|   |              
|   | (a)          
|   |              
|   |              
|   |              
|   | (b)          
|   |              
|   |              

| | i.    | On December 19, 2012, the Company completed a
      non-brokered private placement pursuant to which the Company sold
      7,966,794 shares for gross proceeds of $3,585,057. The Company paid cash
      finders fees of $51,608 and issued 114,000 finders warrants with each
      finders warrant exercisable to purchase one share at a price of $0.50
      until December 19, 2013. All common shares issued had a hold period
      expiring on April 19, 2013.                                                                                                                                                                                          
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ii.   | On December 28, 2012, the Company closed a non-brokered
      private placement of flow-through common shares. The Company issued
      6,000,800 flow-through common shares at a price of $0.50 per share for
      gross proceeds of $3,000,400. All common shares issued had a hold period
      expiring on April 28, 2013. The Company paid aggregate finders fees of
      $175,824 in cash plus 351,648 finders warrants. Each finders warrant was
      exercisable to purchase one non-flow-through common share at $0.55 per
      share until December 28, 2013. The Company recorded a flow-through premium
      liability in the amount of $420,056.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | iii.  | On January 11, 2013, the Company issued 240,000 common
      shares on exercise of 240,000 warrants for gross proceeds of
    $30,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | iv.   | On February 8, 2013, the Company closed the second and
      final tranche of the non-brokered private placement, issuing 2,472,222
      common shares for gross proceeds of $1,112,500. The Company paid cash
      finders fees of $55,626 and issued 123,610 finders warrants with each
      finders warrant exercisable to purchase one common share at a price of
      $0.50 until February 8, 2014.                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | v.    | On March 11, 2013, the Company issued 500,000 common
      shares with a fair value of $135,000 as a finders fee in connection with
      the acquisition of the Sheini project in Ghana (note 5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | vi.   | On April 19, 2013, the Company issued 400,000 common
      shares with a fair value of $68,000 in connection with the exercise by
      Cardero Coal of the option to acquire the Shares (note
5(e)(ii)).                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | vii.  | On April 25, 2013, the Company issued 2,000,000 common
      shares to affiliates of Luxor Capital Group, LP. (Lenders) as bonus in
      connection with a placement of senior secured notes in the aggregate
      principal amount of USD 5,500,000 to the Lenders (note 7).                                                                                                                                                                                                                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | viii. | On May 29, 2013, the Company issued 240,000 common shares
      on exercise of 240,000 warrants for gross proceeds of $30,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ix.   | On June 3, 2013, the Company issued 200,000 common shares
      on exercise of 200,000 options for gross proceeds of
  $12,500.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

23

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|8. | SHARE CAPITAL (Continued)
|-- | -------------------------
|   |                          
|   | (b)                      
|   |                          
|   |                          

| | i.   | On November 29, 2011, the Company completed a
      non-brokered private placement pursuant to which the Company sold
      8,029,750 units (Units) at a price of $ 0.95 per Unit for aggregate
      gross proceeds of $7,628,263. Each Unit consists of one common share of
      the Company (a Share) and one-half of one common share purchase warrant
      (each whole warrant, a Warrant). Each Warrant is exercisable into one
      additional Share until November 29, 2012 at an exercise price of
    $1.25.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ii.  | An aggregate of 1,332,600 common shares were issued on
      exercise of 852,600 agents warrants and 480,000 share purchase warrants
      for gross proceeds of $457,219.                                                                                                                                                                                                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | iii. | The Company issued 1,000,000 common shares with a fair
      value of $900,000 as a finders fee in connection with the acquisition of
      the Sheini project. (note 7(e)).                                                                                                                                                                                                                                                                                                                                                  

| | (c) | Share purchase warrants                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                          
| |     | The following common share purchase warrants entitle the
      holders thereof to purchase one common share for each warrant. Warrants
      transactions are as follows:

2013
    
    
    2012
    
    
    2011Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseWarrants
    
    
    Price
    
    
    Warrants
    
    
    Price
    
    
    Warrants
    
    
    PriceWarrants outstanding,
         beginning of the year
    
    6,094,875
    
    $
    0.96
    
    
    3,412,600
    
    $
    0.39
    
    
    -
    
    $
    -Issued
    
    28,948,324
    
    $
    0.10
    
    
    4,014,875
    
    $
    1.25
    
    
    3,856,400
    
    $
    0.39Exercised
    
    (480,000
    )
    $
    (0.125
    )
    
    (1,332,600
    )
    $
    (0.34
    )
    
    (443,800
    )
    $
    (0.39
    )Expired
    
    (5,614,875
    )
    $
    (1.25
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Warrants outstanding,    end of the year
    
    28,948,324
    
    $
    0.06
    
    
    6,094,875
    
    $
    0.96
    
    
    3,412,600
    
    $
    0.39


The weighted average remaining
contractual life of warrants outstanding at October 31, 2013 was 6.64 year (2012
 0.24 years).

Warrants outstanding are as follows:

| |                   |   | 2013     |  |  | 2012       | 
| | ----------------- | - | -------- |  |  | ---------- | 
| |                   |   | Exercise |  |  | Number of  | 
| | Expiry Date       |   | Price    |  |  | Warrants   | 
| |                   |   |          |  |  |            | 
| | November 29, 2012 | $ | -        |  |  | -          | 
| | January 12, 2013  | $ | -        |  |  | -          | 
| | May 29, 2013      | $ | -        |  |  | -          | 
| | June 1, 2013      | $ | -        |  |  | -          | 
| | December 19, 2013 | $ | 0.50     |  |  | 114,000    | 
| | December 28, 2013 | $ | 0.55     |  |  | 351,648    | 
| | February 8, 2014  | $ | 0.50     |  |  | 123,610    | 
| | August 8, 2020    | $ | 0.095    |  |  | 28,359,066 | 
| |                   |   |          |  |  | 28,948,324 | 

24

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|8. | SHARE CAPITAL (Continued)
|-- | -------------------------
|   |                          
|   | (d)                      
|   |                          
|   |                          

2013
    
    
    2012
    
    
    2011Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOptions outstanding,   
      beginning of the year
    
    9,566,143
    
    $
    0.98
    
    
    6,599,143
    
    $
    1.04
    
    
    5,310,000
    
    $
    1.23Granted pursuant to acquisition    (note 3)
    
    -
    
    $
    -
    
    
    -
    
    $
    -
    
    
    2,029,143
    
    $
    0.32Granted
    
    10,410,000
    
    $
    0.14
    
    
    6,537,000
    
    $
    1.05
    
    
    1,100,000
    
    $
    1.83Expired
    
    (8,611,143
    )
    $
    0.97
    
    
    (3,570,000
    )
    $
    1.21
    
    
    (1,000,000
    )
    $
    1.30Exercised
    
    (200,000
    )
    $
    0.07
    
    
    -
    
    $
    -
    
    
    (840,000
    )
    $
    1.22Options
      outstanding,    end of the year
    
    11,165,000
    
    $
    0.22
    
    
    9,566,143
    
    $
    0.98
    
    
    6,599,143
    
    $
    1.04


The weighted average remaining
contractual life of options outstanding at October 31, 2013 was 4.92 year (2012
 1.19 years).

The weighted average market price for
840,000 options exercised during the year ended October 31, 2011 was $1.84.

Stock options outstanding are as
follows:

2013
    
    
    
    
    
    
    
    
    2012Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Exercisable
    
    
    Number of
    
    
    ExercisableExpiry Date
    
    Price
    
    
    Options
    
    
    at
      year End
    
    
    Price
    
    
    Options
    
    
    at
      year EndJanuary 28, 2013
    $
    -
    
    
    -
    
    
    -
    
    $
    1.83
    
    
    1,000,000
    
    
    1,000,000June 1, 2013
    $
    -
    
    
    -
    
    
    -
    
    $
    0.06
    
    
    280,000
    
    
    140,000June 1, 2013
    $
    -
    
    
    -
    
    
    -
    
    $
    0.16
    
    
    100,000
    
    
    50,000June 1, 2013
    $
    -
    
    
    -
    
    
    -
    
    $
    0.31
    
    
    320,000
    
    
    160,000June 1, 2013
    $
    -
    
    
    -
    
    
    -
    
    $
    0.38
    
    
    980,000
    
    
    490,000June 1, 2013
    $
    -
    
    
    -
    
    
    -
    
    $
    0.44
    
    
    349,143
    
    
    174,572November 9, 2013
    $
    1.10
    
    
    400,000
    
    
    400,000
    
    $
    1.10
    
    
    1,400,000
    
    
    1,400,000January 26, 2014
    $
    1.51
    
    
    225,000
    
    
    225,000
    
    $
    1.51
    
    
    1,500,000
    
    
    1,500,000March 23, 2014
    $
    1.16
    
    
    25,000
    
    
    25,000
    
    $
    1.16
    
    
    537,000
    
    
    537,000September 27, 2014
    $
    0.78
    
    
    225,000
    
    
    225,000
    
    $
    0.78
    
    
    3,100,000
    
    
    3,100,000January 4, 2015
    $
    0.45
    
    
    200,000
    
    
    200,000
    
    $
    -
    
    
    -
    
    
    -May 28, 2015
    $
    0.20
    
    
    2,575,000
    
    
    2,575,000
    
    $
    -
    
    
    -
    
    
    -July 3, 2020
    $
    0.11
    
    
    7,515,000
    
    
    7,515,000
    
    $
    -
    
    
    -
    
    
    -11,165,000
    
    
    11,165,000
    
    
    
    
    
    9,566,143
    
    
    8,551,572


25

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|8. | SHARE CAPITAL (Continued)
|-- | -------------------------
|   |                          
|   | (c)                      
|   |                          
|   |                          

| |                       | 2013   | 2012  
| | --------------------- | ------ | ------
| | Expected life (years) | 5.67   | 2.0   
| | Interest rate         | 1.16%  | 1.05% 
| | Volatility            | 74.62% | 59.34%
| | Dividend yield        | 0.00%  | 0.00% 

Share-based payment charges for the
year ended October 31, 2013 totalled $671,036 (2012 - $3,350,460), allocated as
follows:

| |                             |   | 2013    |  |   | 2012      |  |   | 2011      | 
| | --------------------------- | - | ------- |  | - | --------- |  | - | --------- | 
| | Consulting fees             | $ | 227,154 |  | $ | 106,937   |  | $ | 15,135    | 
| | Investor relations          |   | 37,644  |  |   | 204,222   |  |   | 294,066   | 
| | Professional fees           |   | 15,464  |  |   | 179,305   |  |   | -         | 
| | Salaries and
      benefits |   | 390,774 |  |   | 2,859,996 |  |   | 992,734   | 
| |                             |   |         |  |   |           |  |   |           | 
| |                             | $ | 671,036 |  | $ | 3,350,460 |  | $ | 1,301,935 | 

The weighted average fair value of
options granted during the year was $0.06 (October 31, 2012 - $0.32) .

|9. | RELATED PARTY TRANSACTIONS
|-- | --------------------------
|   |                           
|   | (a)                       
|   |                           
|   |                           
|   |                           
|   | (b)                       
|   |                           
|   |                           

| |                                   |   | 2013    |  |   | 2012    |  |   | 2011    | 
| | --------------------------------- | - | ------- |  | - | ------- |  | - | ------- | 
| |                                   |   |         |  |   |         |  |   |         | 
| | Consulting fees                   | $ | 185,000 |  | $ | 255,000 |  | $ | 115,000 | 
| | Exploration and evaluation assets |   | 49,000  |  |   | -       |  |   | -       | 
| | Professional fees                 | $ | 87,511  |  | $ | 87,500  |  | $ | 82,500  | 

Professional fees include amounts paid
to a law firm of which an officer is a shareholder.

26

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|9. | RELATED PARTY TRANSACTIONS (Continued)
|-- | --------------------------------------
|   |                                       
|   | (c)                                   
|   |                                       
|   |                                       

| |                                                                                                                            |   | 2013    |  |   | 2012    | 
| | -------------------------------------------------------------------------------------------------------------------------- | - | ------- |  | - | ------- | 
| |                                                                                                                            |   |         |  |   |         | 
| | Unsecured promissory notes, 1% per annum, due the earlier of 30 days
      after    demand or the due date, if applicable: |   |         |  |   |         | 
| | Wealth                                                                                                                     | $ | 42,973  |  | $ | -       | 
| | Indico                                                                                                                     |   | 53,172  |  |   | 198,239 | 
| | Abzu Gold                                                                                                                  |   | -       |  |   | 230,606 | 
| | ITH                                                                                                                        |   | -       |  |   | 1,141   | 
| | Others                                                                                                                     |   | 60,986  |  |   | 93,626  | 
| |                                                                                                                            |   |         |  |   |         | 
| |                                                                                                                            | $ | 157,131 |  | $ | 523,612 | 

| |     | The Company recovered $376,166 during the year ended
      October 31, 2013 (2012 - $774,698) in rent and administration costs from
      Marvel Office Management, Wealth, Indico, Balmoral, Corvus and LWTLC,
      companies with common officers or directors.( International Tower Hill,
      Xiana and Abzu Gold ceased to be related parties).                                                                                                                                                                                                                                                                 
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Due to the current equity market condition, during the
      year ended October 31, 2013 the Company assessed the collectability of
      amounts due from related parties. The Company has concluded the amounts
      due from Indico, from the year ended October 31, 2012, (2012 - Wealth and
      Xiana) are unlikely to be collected in the foreseeable future and have
      recognized an impairment loss of $198,239 (2012 - $1,112,726). The Company
      will continue to assess the collectability of these amounts and will make
      the appropriate adjustments in the future if these are
collected.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (d) | Management Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Key management personnel compensation
  comprised:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| |                            |   | 2013      |  |   | 2012      |  |   | 2011      | 
| | -------------------------- | - | --------- |  | - | --------- |  | - | --------- | 
| |                            |   |           |  |   |           |  |   |           | 
| | Wages and benefits         | $ | 1,100,268 |  | $ | 959,167   |  | $ | 578,333   | 
| | Share-based
      payments | $ | 253,599   |  | $ | 1,481,212 |  | $ | 1,154,674 | 
| |                            | $ | 1,353,867 |  | $ | 2,440,378 |  | $ | 2,022,160 | 

27

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|9. | RELATED PARTY TRANSACTIONS (Continued)
|-- | --------------------------------------
|   |                                       
|   | (e)                                   
|   |                                       
|   |                                       
|   |                                       
|   |                                       

| |  | USD 5,000,000 (CAD $5,090,000) in
      cash, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Through the issuance of 4,149,521 units (Units) of
      Trevali at a deemed price of $0.90 per Unit. Each Unit is comprised of one
      common share of Trevali (Common Share) and one-half of one transferrable
      common share purchase warrant (a Warrant). Each whole Warrant will
      entitle the holder thereof to purchase one Common Share (Warrant Share)
      at a price of $1.10 per share until January 16, 2014. The Common Shares,
      Warrants and any Warrant Shares issued are subject to a hold period in
      Canada expiring on May 17, 2012. The fair value of the Units was
      $5,062,416 ($1.22 per Unit). This resulted in $1,368,953 gain on loan
      settlement.

|10. | COMMITMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company entered into a lease dated November 18, 2010
      for office space located at 2300  1177 West Hastings Street, Vancouver
      for a term commencing April 1, 2011 for a period of ten years to March 31,
      2021 (subject to renewal for an additional five years). The rent for the
      first three years is $312,579 per annum, plus operating costs and $335,733
      per annum, plus operating costs for the next two years.                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Companys subsidiary Cardero Coal entered into a
      lease dated November 24, 2011 for office space located at 1800 - 1177 West
      Hastings Street, Vancouver for a term commencing May 1, 2012 for a period
      of eight years and eleven months. The rent for the first three years is
      $139,023 per annum, plus operating costs and $149,321 plus operating costs
      per annum for the next two years. Cardero Coal has entered into a
      sub-lease agreement, for 31% of the office space, dated September 27, 2013
      for a term of 4 years. The rent is $42,016 per annum, plus operating
      costs.                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Other commitments are disclosed elsewhere in these
      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|11. | RISK AND CAPITAL MANAGEMENT AND FINANCIAL
      INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company manages its capital structure, and makes
      adjustments to it, based on the funds available to the Company in order to
      support future business opportunities. The Company defines its capital as
      shareholders equity. The Board of Directors does not establish
      quantitative return on capital criteria for management, but rather relies
      on the expertise of the Companys management to sustain future development
      of the business.                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company currently has no source of revenues; as such,
      the Company is dependent upon external financings or the sale of assets
      (or an interest therein) to fund activities. In order to carry future
      projects and pay for administrative costs, the Company will spend its
      existing working capital and raise additional funds as needed. Management
      reviews its capital management approach on an ongoing basis and believes
      that this approach, given the relative size of the Company, is reasonable.
      There were no changes in the Companys approach to capital management
      during the year ended October 31, 2013. The Company is not subject to
      externally imposed capital requirements.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company classified its cash and cash equivalents as
      loans and receivables; accounts receivable and due from related parties as
      loans and receivables; and accounts payable and accrued liabilities as
      other financial liabilities. The classification of resource related
      investments is set out in note 5. The carrying values of cash and cash
      equivalents, accounts receivable and accrued liabilities approximate their
      fair values due to the short-term maturity of these financial instruments.
      The fair values of amounts due from related parties have not been
      disclosed, as their fair values cannot be reliably measured since the
      parties are not at arms length.             

28

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|11. | RISK AND CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
      (Continued)                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                               
|    | IFRS 7 Financial instruments: Disclosuresestablishes a fair value hierarchy that prioritizes the inputs to
      valuation techniques used to measure fair value as
  follows:

| | Level 1  | quoted prices (unadjusted) in
      active markets for identical assets or liabilities;                                                                                                         
| | --------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 2  | inputs other than quoted prices included in Level 1 that
      are observable for the asset or liability, either directly (i.e., as
      prices) or indirectly (i.e., derived from prices); and
| | Level 3  | inputs for the asset or liability
      that are not based on observable market data (unobservable inputs).                                                                                     

The fair value hierarchy requires the
use of observable market inputs whenever such input exists. A financial
instrument is classified to the lowest level of the hierarchy for which a
significant input has been considered in measuring fair value.

The following table sets forth the
Companys significant financial assets measured at fair value by level within
the fair value hierarchy.

| | October 31, 2013             |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total   | 
| | ---------------------------- |  | ------- |  |  | ------- |  |  | ------- |  |  | ------- | 
| |                              |  |         |  |  |         |  |  |         |  |  |         | 
| | Resource related investments |  | 409,276 |  |  | 87,470  |  |  | -       |  |  | 496,746 | 

| | October 31, 2012             |  | Level 1   |  |  | Level 2 |  |  | Level 3 |  |  | Total     | 
| | ---------------------------- |  | --------- |  |  | ------- |  |  | ------- |  |  | --------- | 
| |                              |  |           |  |  |         |  |  |         |  |  |           | 
| | Resource related investments |  | 2,076,854 |  |  | 494,957 |  |  | -       |  |  | 2,571,811 | 

The Companys exposure to risk on its
financial instruments is summarized below:

| | (a) | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company manages credit risk, in respect of cash and
      cash equivalents, by purchasing highly liquid, short-term investment grade
      securities held at major financial institutions in Canada, Ghana and Peru
      in accordance with the Companys investment policy. In regards to amounts
      receivable, the Company is not exposed to significant credit risk, as they
      are primarily due from governmental agencies.

Oct 31, 2013
    
    
    Oct 31, 2012Bank accounts - Canada
    $
    147,356
    
    $
    1,728,431Bank accounts - USA
    
    119,704
    
    
    307,157Bank accounts - Others
    
    24,217
    
    
    106,911$
    291,277
    
    $
    2,142,499


The credit risk associated with cash
and cash equivalents is minimized substantially by ensuring that these financial
assets are placed with major financial institutions with strong investment-grade
ratings given by a primary ratings agency. The Company does not hold any
asset-backed securities.

With respect to the $157,131(2012
-$523,612) due from related parties at October 31, 2013, of which $144,517 (2012
- $453,537) were past due, the maximum exposure to credit risk is the carrying
value of the receivables as the Company does not have any collateral for the
receivables.

29

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|11. | RISK AND CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
      (Continued)
|--- | -----------------------------------------------------------------------
|    |                                                                        
|    | (b)                                                                    
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    | (c)                                                                    
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        
|    |                                                                        

30

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|12. | INCOME TAXES                                                                                                                                                                                                                                  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                               
|    | Income tax expense is different from the amount that
      would result from applying the Canadian and federal and provincial income
      tax rates to earnings before income taxes. These differences result from
      the following items:

| |                                                          |   | 2013        |   |   | 2012        |   |   | 2011        |  
| | -------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                                                          |   |             |   |   |             |   |   |             |  
| | Loss before income taxes                                 | $ | (29,947,850 | ) | $ | (10,507,323 | ) | $ | (20,730,955 | )
| | Canadian federal
      and provincial income tax rates   |   | 25.57%      |   |   | 25.25%      |   |   | 26.83%      |  
| | Income tax recovery                                      |   | (7,657,665  | ) |   | (2,653,099  | ) |   | (5,562,115  | )
| | Increase (decrease) due to:                              |   |             |   |   |             |   |   |             |  
| |                                                          |   |             |   |   |             |   |   |             |  
| | Non-deductible expenses                                  |   | 13,497      |   |   | 50,938      |   |   | 38,991      |  
| | Stock-based compensation                                 |   | 167,630     |   |   | 845,991     |   |   | 469,049     |  
| | Non-taxable portion of capital gains                     |   | 184,967     |   |   | (686,660    | ) |   | (991,889    | )
| | Write-off of exploration and
      evaluation assets     |   | 4,524,456   |   |   | 692,168     |   |   | 3,275,441   |  
| | Losses for which no tax benefit has been recorded        |   | 2,631,056   |   |   | 2,869,339   |   |   | 5,535,023   |  
| | Change in enacted tax rates                              |   | (54,766     | ) |   | 27,707      |   |   | 828,255     |  
| | Flow-through share premium reversal                      |   | (187,443    | ) |   | -           |   |   | 859,159     |  
| | Foreign exchange and other
      translation adjustments |   | 192,723     |   |   | 43,657      |   |   | -           |  
| | Difference
      between Canadian and foreign tax rates  |   | (350,750    | ) |   | (103,265    | ) |   | (33,992     | )
| |                                                          |   |             |   |   |             |   |   |             |  
| | Income tax
      expense                                 | $ | (188,187    | ) | $ | 1,086,776   |   | $ | 4,417,922   |  

The components of unrecognized net
deferred tax assets (liabilities) are as follows:

| |                                   |   | 2013       |  |   | 2012       |  |   | 2011       |  
| | --------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- | -
| |                                   |   |            |  |   |            |  |   |            |  
| | Non-capital loss carry-forwards   | $ | 14,882,988 |  | $ | 10,559,384 |  | $ | 14,587,869 |  
| | Property and equipment            |   | 130,332    |  |   | 208,258    |  |   | 133,630    |  
| | Share issue costs                 |   | 151,427    |  |   | 65,643     |  |   | 162,765    |  
| | Exploration and evaluation assets |   | 3,405,934  |  |   | 1,348,251  |  |   | 5,585,137  |  
| | Resource related investments      |   | 1,033,418  |  |   | 779,601    |  |   | (854,452   | )
| | Other                             |   | 123,060    |  |   | 779,113    |  |   | 1,450,635  |  
| |                                   |   |            |  |   |            |  |   |            |  
| |                                   |   | 19,727,159 |  |   | 13,740,250 |  |   | 21,065,584 |  

31

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|12. | INCOME TAXES                                                                                                                                                                                                          
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                       
|    | The Company has available approximate non-capital losses
      that may be carried forward to apply against future years' income for
      income tax purposes in all jurisdictions. The losses expire as
    follows:

| | Available to    |   | Canada     |  |   | Foreign    |  |   | Total      | 
| | --------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
| |                 |   |            |  |   |            |  |   |            | 
| | 2014            |   | -          |  |   | 1,430,462  |  |   | 1,430,462  | 
| | 2015            |   | -          |  |   | 479,775    |  |   | 479,775    | 
| | 2016            |   | -          |  |   | 366,516    |  |   | 366,516    | 
| | 2017            |   | -          |  |   | 1,040,293  |  |   | 1,040,293  | 
| | 2018            |   | -          |  |   | 1,342,353  |  |   | 1,342,353  | 
| | 2019            |   | -          |  |   | 1,519,127  |  |   | 1,519,127  | 
| | 2020            |   | -          |  |   | 348,937    |  |   | 348,937    | 
| | 2021            |   | -          |  |   | 303,284    |  |   | 303,284    | 
| | 2022            |   | -          |  |   | 1,479,817  |  |   | 1,479,817  | 
| | 2023            |   | -          |  |   | 160,296    |  |   | 160,296    | 
| | 2024            |   |            |  |   | 151,482    |  |   | 151,482    | 
| | 2026            |   | 2,208,752  |  |   | -          |  |   | 2,208,752  | 
| | 2027            |   | 3,393,725  |  |   | 8,817      |  |   | 3,402,542  | 
| | 2028            |   | 4,039,551  |  |   | 354,363    |  |   | 4,393,914  | 
| | 2029            |   | 2,635,510  |  |   | 230,673    |  |   | 2,866,183  | 
| | 2030            |   | 6,578,839  |  |   | 559,083    |  |   | 7,137,922  | 
| | 2031            |   | 2,086,389  |  |   | 659,878    |  |   | 2,746,267  | 
| | 2032            |   | 5,098,379  |  |   | 240,354    |  |   | 5,338,733  | 
| | 2033            |   | 10,474,258 |  |   | 167,221    |  |   | 10,641,479 | 
| | Deferred expiry |   | -          |  |   | 6,451,580  |  |   | 6,451,580  | 
| |                 |   |            |  |   |            |  |   |            | 
| |                 | $ | 36,515,403 |  | $ | 17,294,310 |  | $ | 53,809,713 | 

During the year ended October 31, 2013 the Company recorded a
flow through premium liability in the amount of $420,056 pursuant to a private
placement with a current balance of $232,613. The Company has $1,661,521 of
exploration expenditures to be incurred for flow-through purposes by December
31, 2013.

|13. | SUPPLEMENTAL CASH FLOW
  INFORMATION
|--- | ------------------------------------

| |                                                        |   | 2013      |  |   | 2012      | 
| | ------------------------------------------------------ | - | --------- |  | - | --------- | 
| |                                                        |   |           |  |   |           | 
| | Supplemental Cash Flow Information                     |   |           |  |   |           | 
| |                                                        |   |           |  |   |           | 
| | Accounts payable related to
      property expenditure | $ | 3,129,537 |  | $ | 7,815,244 | 
| | Interest payable                                       | $ | 141,693   |  | $ | -         | 
| | Shares issue for short term loan                       |   | 420,000   |  | $ | -         | 

32

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2013 and 2012

|14. | SUBSEQUENT EVENTS              
|--- | -------------------------------
|    |                                
|    | Subsequent to October 31,
2013:

| | a) | On December 5, 2013, the Company completed the
      implementation of a US$ 5.0 million line of credit (Credit Line) from
      lenders controlled by Mr. Robert C. Kopple of Los Angles,
    California.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | The Credit Line reflects or includes all amounts advanced
      by the Lenders since the purchase of the Notes, interest due under the
      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 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 US$ 3.7 million of the Notes has been extended
      from December 31, 2013 until February 28, 2014. If the US$ 3.7million of
      the 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 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 has agreed to issue to the Lenders
      transferrable common share purchase warrants to purchase an aggregate of
      38,417,396 common shares of the Company (the Warrants). Of this number,
      28,359,066 were issued to the Lenders on the closing of the Credit Line on
      December 5, 2013. The issuance of the additional 10,058,330 Warrants is
      subject to the approval thereof by the Companys shareholders. The
      Warrants have a term of seven years, and are exercisable at a price of
      $0.139. The Warrants, and any shares issuable on the exercise thereof,
      will be subject to a hold period in Canada of four months from the date of
      issuance, plus additional restrictions under United States securities
      laws.                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | b) | On December 12, 2013 the Company completed debt
      settlement with a number of arms length creditors. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | c) | On December 19, 2013, 114,000 share purchase warrants at
      a price of $0.45 expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | d) | On December 28, 2013, 351,648 share purchase warrants at
      a price of $0.55 expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | e) | On November 8, 2013, 400,000 stock options were exercised
      at a price of $0.11 for proceeds of $44,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | f) | On January 7, 2014, 75,000 stock options were exercised
      at a price of $0.11 for proceeds of $8,250.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | g) | On November 8, 2013, 450,000 stock options at a price of
      $0.20 expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | h) | On November 9, 2013, 400,000 stock options at a price of
      $1.10, 100,000 stock options at a price of $0.78 and 100,000 stock options
      at a price of $0.11 expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | i) | On January 26, 2014, 225,000 stock options expired at a
      price of $1.51.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | j) | On January 27, 2014 136,000 stock options were exercised
      at a price of $0.11 for proceeds of $14,850.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

33

---

|ITEM 19. |                                                                                                                                                                                                       | EXHIBITS
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------
|         |                                                                                                                                                                                                       |         
|1.1(1)   | Current Notice of Articles                                                                                                                                                                           
|1.2(2)   | New Articles as amended and effective
      March 22, 2011                                                                                                                                           
|4.1(2)   | 2012 Incentive Stock Option Plan                                                                                                                                                                     
|4.2(2)   | Form of Stock Option Agreement under
      2012 Incentive Stock Option Plan                                                                                                                          
|4.3(2)   | Form of Subscription Agreement
      utilized in Cardero Private Placement which closed on December 20, 2012                                                                                         
|4.4      | Form of Subscription Agreement
      utilized in connection with the placement of Kopple Notes                                                                                                       
|4.5      | Senior Secured Note dated August 8,
      2013 issued to Kopple Family LP in connection with the placement of Kopple Notes                                                                           
|4.6      | Senior Secured Note dated August 8,
      2013 issued to E.L. II Properties Trust in connection with the placement of Kopple Notes                                                                   
|4.7      | General Security Agreement dated
      August 8, 2013 among Cardero, as borrower, and the Kopple Lenders in connection with the
      granting of security for the Kopple Notes and the Credit Line  
|4.8      | Pledge Agreement dated August 8, 2013
      among Cardero, as borrower, and the Kopple Lenders in connection with the granting of
      security for the Kopple Notes and the Credit Line            
|4.9      | Cardero Coal Guarantee dated August
      8, 2013 among Cardero Coal, as guarantor, and the Kopple Lenders in connection with the
      granting of security for the Kopple Notes and the Credit Line
|4.10     | Form of Warrant utilized in
      connection with the Kopple Notes                                                                                                                                   
|4.11     | Facility Agreement dated December 5,
      2013 between Cardero and the Kopple Lenders in connection with the Credit Line                                                                            
|4.12     | Amendment to Facility Agreement dated
      December 5, 2013 between Cardero and the Kopple Lenders in connection with the Credit Line                                                               
|4.13     | Form of Warrant Certificate used in
      connection with the Credit Line                                                                                                                            
|4.14(2)  | Arrangement Agreement dated April 18,
      2011 between Cardero and Coalhunter with respect to the acquisition by Cardero of the
      outstanding securities of Coalhunter                         
|4.15(2)  | Coal Tenure Option Agreement dated
      May 18, 2010 between Alan A. Johnson and Coalhunter                                                                                                         
|4.16(2)  | Coal Tenure Option Agreement Amending
      Agreement dated April 14, 2011 between Alan A. Johnson and Coalhunter                                                                                    
|4.17(2)  | Coal Tenure Option Agreement Second
      Amending Agreement dated January 14, 2013 between Alan A. Johnson and Cardero Coal                                                                         
|4.18(2)  | Coal Lease between Peace River
      Partnership and Coalhunter dated June 15, 2010                                                                                                                  
|4.19     | Coal Lease Amending Agreement dated
      May 1, 2013 between Peace River Partnership and Cardero Coal                                                                                               
|4.20(2)  | Joint Venture Agreement dated June
      15, 2010 between Carbon Creek Partnership and Coalhunter                                                                                                    
|4.21(2)  | Joint Venture Agreement Amending
      Agreement dated April 14, 2011 between Carbon Creek Partnership and Coalhunter                                                                                
|4.22     | Joint Venture Agreement Amending
      Agreement dated May 1, 2013 between Carbon Creek Partnership and Coalhunter                                                                                   
|8.1      | List of Subsidiaries (incorporated by
      reference to Item 4.C  Organizational Structure)                                                                                                        
|         |                                                                                                                                                                                                       |         
|103     

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|12.1    | Certification of the Chief Executive Officer as required by Rule 13a-14(a) under the SecuritiesExchange Act of 1934                                  
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|12.2    | Certification of the Chief Financial Officer as required by Rule 13a-14(a) under the SecuritiesExchange Act of 1934                                  
|13.1    | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|13.2    | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|15.1    | Consent of PricewaterhouseCoopers LLP                                                                                                                
|15.2(1) | Audit Committee Charter                                                                                                                              
|15.3(1) | Compensation Committee Charter                                                                                                                       
|(1)     | Incorporated by reference from Cardero’s annual report on Form 20-F filed on April 30, 2009 with the SEC.                                            
|(2)     | Incorporated by reference from Cardero’s annual report on Form 20-F filed on February 28, 2013 with the SEC.                                         
|        |                                                                                                                                                      
|104    

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SIGNATURES

The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.

CARDERO RESOURCE CORP.



/s/ Hendrik Van
AlphenBy: Hendrik Van Alphen, President and Chief Executive
Officer

Date:
 May 6,
2014

105

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