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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, 2012

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:

|Title of each class:        | Name of each exchange on which registered:
|--------------------------- | ------------------------------------------
|Common Shares, no par value | NYSE MKT LLC                              

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

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

At October 31, 2012, the registrant had outstanding 93,416,454
  common shares without par value.

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]

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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
[X]               
Non-accelerated filer [   ]

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 by the International Accounting Standards Board [X] | Other [ ]
|--------------- | --------------------------------------------------------------------------------------------------------------- | ---------

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 | 10                                                                     
|                                  |                                                                         |                                                            |         
|PART I                            |                                                                         |                                                            | 13      
|                                  |                                                                         |                                                            |         
|ITEM 1.                           | IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS             | 13                                                        
|                                  |                                                                         |                                                            |         
|ITEM 2.                           | OFFER STATISTICS
      AND EXPECTED TIMETABLE                           | 13                                                        
|                                  |                                                                         |                                                            |         
|ITEM 3.                           | KEY INFORMATION                                                         | 13                                                        
|                                  |                                                                         |                                                            |         
|                                  | 3.A                                                                     | Selected Financial Data                                    | 13      
|                                  |                                                                         |                                                            |         
|                                  | 3.B                                                                     | Capitalization and Indebtedness                            | 14      
|                                  |                                                                         |                                                            |         
|                                  | 3.C                                                                     | Reasons for the Offer and
      Use of Proceeds            | 14      
|                                  |                                                                         |                                                            |         
|                                  | 3.D                                                                     | Risk Factors                                               | 15      
|                                  |                                                                         |                                                            |         
|ITEM 4.                           | INFORMATION ON THE COMPANY                                              | 24                                                        
|                                  |                                                                         |                                                            |         
|                                  | 4.A                                                                     | History and Development
      of the Company               | 24      
|                                  |                                                                         |                                                            |         
|                                  | 4.B                                                                     | Business Overview                                          | 27      
|                                  |                                                                         |                                                            |         
|                                  | 4.C                                                                     | Organizational Structure                                   | 36      
|                                  |                                                                         |                                                            |         
|                                  | 4.D                                                                     | Property, Plants and Equipment                             | 37      
|                                  |                                                                         |                                                            |         
|                                  | Carbon Creek
      Metallurgical Coal Deposit, British Columbia, Canada | 37                                                        
|                                  |                                                                         |                                                            |         
|                                  | Sheini Hills
      Iron Ore Project, Ghana                              | 60                                                        
|                                  |                                                                         |                                                            |         
|ITEM 5.                           | OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS                      | 68                                                        
|                                  |                                                                         |                                                            |         
|                                  | 5.A                                                                     | Operating Results                                          | 69      
|                                  |                                                                         |                                                            |         
|                                  | 5.B                                                                     | Liquidity and Capital Resources                            | 70      
|                                  |                                                                         |                                                            |         
|                                  | 5.C                                                                     | Research and Development,
      Patents and Licences, etc. | 72      
|                                  |                                                                         |                                                            |         
|                                  | 5.D                                                                     | Trend Information                                          | 72      
|                                  |                                                                         |                                                            |         
|                                  | 5.E                                                                     | Off-Balance Sheet Arrangements                             | 73      
|                                  |                                                                         |                                                            |         
|                                  | 5.F                                                                     | Tabular Disclosure of Contractual
      Obligations        | 73      
|                                  |                                                                         |                                                            |         
|ITEM 6.                           | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                              | 73                                                        
|                                  |                                                                         |                                                            |         
|                                  | 6.A                                                                     | Directors and Senior Management                            | 73      
|                                  |                                                                         |                                                            |         
|                                  | 6.B                                                                     | Compensation                                               | 77      
|                                  |                                                                         |                                                            |         
|                                  | 6.C                                                                     | Board Practices                                            | 83      
|                                  |                                                                         |                                                            |         
|                                  | 6.D                                                                     | Employees                                                  | 85      
|                                  |                                                                         |                                                            |         
|                                  | 6.E                                                                     | Share Ownership                                            | 85      
|                                  |                                                                         |                                                            |         
|ITEM 7.                           | MAJOR SHAREHOLDERS
      AND RELATED PARTY TRANSACTIONS                 | 90                                                        
|                                  |                                                                         |                                                            |         
|                                  | 7.A                                                                     | Major Shareholders                                         | 90      

1

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|          | 7.B                                                                                    | Related Party Transactions                              | 91 
|--------- | -------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---
|          |                                                                                        |                                                         |    
|ITEM 8.   | FINANCIAL INFORMATION                                                                  | 93                                                     
|          |                                                                                        |                                                         |    
|          | 8.A                                                                                    | Consolidated Statements and Other Financial Information | 93 
|          |                                                                                        |                                                         |    
|          | 8.B                                                                                    | Significant Changes                                     | 94 
|          |                                                                                        |                                                         |    
|ITEM 9.   | THE OFFER AND LISTING                                                                  | 95                                                     
|          |                                                                                        |                                                         |    
|          | 9.A                                                                                    | Offer and Listing Details                               | 95 
|          |                                                                                        |                                                         |    
|          | 9.B                                                                                    | Plan of Distribution                                    | 97 
|          |                                                                                        |                                                         |    
|          | 9.C                                                                                    | Markets                                                 | 97 
|          |                                                                                        |                                                         |    
|          | 9.D                                                                                    | Selling Shareholders                                    | 97 
|          |                                                                                        |                                                         |    
|          | 9.E                                                                                    | Dilution                                                | 97 
|          |                                                                                        |                                                         |    
|          | 9.F                                                                                    | Expenses of the Issue                                   | 97 
|          |                                                                                        |                                                         |    
|ITEM 10.  | ADDITIONAL INFORMATION                                                                 | 97                                                     
|          |                                                                                        |                                                         |    
|          | 10.A                                                                                   | Share Capital                                           | 97 
|          |                                                                                        |                                                         |    
|          | 10.B                                                                                   | Memorandum and Articles of Association                  | 97 
|          |                                                                                        |                                                         |    
|          | 10.C                                                                                   | Material Contracts                                      | 101
|          |                                                                                        |                                                         |    
|          | 10.D                                                                                   | Exchange Controls                                       | 101
|          |                                                                                        |                                                         |    
|          | 10.E                                                                                   | Taxation                                                | 102
|          |                                                                                        |                                                         |    
|          | 10.F                                                                                   | Dividends and Paying Agents                             | 110
|          |                                                                                        |                                                         |    
|          | 10.G                                                                                   | Statement by Experts                                    | 110
|          |                                                                                        |                                                         |    
|          | 10.H                                                                                   | Documents on Display                                    | 111
|          |                                                                                        |                                                         |    
|          | 10.I                                                                                   | Subsidiary Information                                  | 111
|          |                                                                                        |                                                         |    
|ITEM 11.  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      **RISK**                   | 111                                                    
|          |                                                                                        |                                                         |    
|ITEM 12.  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                 | 114                                                    
|          |                                                                                        |                                                         |    
|PART II   |                                                                                        |                                                         | 114
|          |                                                                                        |                                                         |    
|ITEM 13.  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                        | 114                                                    
|          |                                                                                        |                                                         |    
|ITEM 14.  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
      **HOLDERS AND USE OF PROCEEDS** | 114                                                    
|          |                                                                                        |                                                         |    
|ITEM 15.  | CONTROLS AND PROCEDURES                                                                | 114                                                    
|          |                                                                                        |                                                         |    
|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT                                                       | 116                                                    
|          |                                                                                        |                                                         |    
|ITEM 16B. | CODE OF ETHICS                                                                         | 116                                                    
|          |                                                                                        |                                                         |    
|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                 | 116                                                    
|          |                                                                                        |                                                         |    
|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
      **COMMITTEES**                   | 117                                                    
|          |                                                                                        |                                                         |    
|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
      **AFFILIATED PURCHASERS**       | 117                                                    
|          |                                                                                        |                                                         |    
|ITEM 16F. | CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT                                           | 117                                                    

2

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|ITEM 16G.  | CORPORATE GOVERNANCE   | 118
|---------- | ---------------------- | ---
|           |                        |    
|ITEM 16H.  | MINE SAFETY DISCLOSURE | 119
|           |                        |    
|PART III   |                        | 119
|           |                        |    
|ITEM 17.   | FINANCIAL STATEMENTS   | 119
|           |                        |    
|ITEM 18.   | FINANCIAL STATEMENTS   | 119
|           |                        |    
|ITEM 19.   | EXHIBITS               | 120
|           |                        |    
|SIGNATURES |                        | 121

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                 | Cardero Argentina, S.A., a wholly owned Argentinean
      subsidiary of Cardero                                                                                                                                                    
| | Argentina               |                                                                                                                                                                                                                                    
| |                          |                                                                                                                                                                                                                                    
| | 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
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | detrital      | Pertaining to or derived from detritus, especially said
      of minerals occurring in sedimentary rocks which were derived from
      pre-existing rocks, either within or outside the basin of deposition                                                                                                                                                                                                                                               
| |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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                                                                                                                                                                                                                                                                                                                                                                    
| | ------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                          |                                                                                                                                                                                                                                                                                                                                                                         
| | ferricrete             | A conglomerate consisting of surficial sand and gravel
      cemented into a hard mass by iron oxide                                                                                                                                                                                                                                                                    
| |                          |                                                                                                                                                                                                                                                                                                                                                                         
| | 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                                                                                                                                                                                                                                                
| |                          |                                                                                                                                                                                                                                                                                                                                                                         
| | heavy media separation | A form of gravity separation, utilizing differences in
      specific gravity of the materials to be separated and a fluid medium in
      which the separation occurs (commonly air)                                                                                                                                                                                   
| |                          |                                                                                                                                                                                                                                                                                                                                                                         
| | hematite               | A common iron mineral found in igneous, sedimentary and
      metamorphic rocks  a principal ore of iron                                                                                                                                                                                                                                                               
| |                          |                                                                                                                                                                                                                                                                                                                                                                         
| | hydrothermal           | A term pertaining to hot aqueous solutions of magmatic
      origin which may transport metals and minerals in solution                                                                                                                                                                                                                                                 
| |                          |                                                                                                                                                                                                                                                                                                                                                                         
| | ironstone              | Any rock containing a substantial proportion of an iron
      compound, specifically, an iron rich sedimentary rock. The term is
      customarily applied to hard, coarsely banded or nonbanded noncherty
      sedimentary rock of post-Precambrian age                                                                                                               
| |                          |                                                                                                                                                                                                                                                                                                                                                                         
| | km                     | Kilometres                                                                                                                                                                                                                                                                                                                                                              
| |                          |                                                                                                                                                                                                                                                                                                                                                                         
| | m                      | Metres                                                                                                                                                                                                                                                                                                                                                                  

6

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| | mm                  | Millimetres                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | magmatic            | Of, or pertaining to, or derived from, magma                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | magnetic separation | A process in which a magnetically susceptible mineral is
      separated from gangue minerals by applying a strong magnetic field; ores
      of iron are commonly treated in this way. It can be either dry(the
      matter to undergo separation does not have any added fluids, such as
      water) or wet (the matter to undergo separation has a fluid, such as
      water, added prior to undergoing separation)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | magnetite           | A black, isometric, strongly magnetic, opaque mineral of
      the spinel group which constitutes an important ore of iron and is a very
      common and widely distributed accessory mineral in rock of all kinds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | MMC                 | Minerales Y Metales California, S.A. de C.V., a wholly
      owned Mexican subsidiary of Cardero                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

7

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| | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 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
| |                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

8

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| | washibility | 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.
| | ------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

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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 and Sheini;
- the potential for a production decision to be made at Sheini for either or
  both of the ironstone ridges or fericrete/detrital deposits, the potential
  commencement of any development of a mine at Sheini following a production
  decision, the potential for any mining of or production from Sheini, the
  potential for any ferricrete/detrital deposits to be mined first and without
  any blasting or open-pit preparation, the potential for the fericrete/detrital
  deposits to be mined by equipment such as open bowl scrapers and for any such
  production carried out in this way to provide significant operational savings
  and the potential for any non-iron material to be easily removed during
  beneficiation of ferricrete/detrital mineralization;
- the anticipated timing of the completion of the feasibility study for the
  Carbon Creek project;
- the potential exercise of the option to acquire the 4 coal licenses forming
  part of the Carbon Creek project, 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, whether by 2014 or at all;
- 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 and cost of the planned future exploration programs at Sheini
  and Carbon Creek and the timing of the receipt of results therefrom;
- 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 including,
  without limitation to complete a planned loan with Sprott Resource Lending
  Partnership; and
- the Companys ability to negotiate acceptable option/joint venture
  agreements for some or all of its non-core properties.

10

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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:

- the Companys future cash requirements, and the ability of the Company to
  raise the funding necessary to carry out its planned work programs and meet
  its general and administrative expenses for the remainder of the fiscal year
  ending October 31, 2013;
- the level and volatility of the price of commodities, and iron ore 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 Sheini and 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
  ongoing and planned 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
  Sheini and 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;
- the Companys ability to negotiate and enter into appropriate off-take
  agreements for the potential products from Carbon Creek; and

11

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- the Companys ability to overcome any potential difficulties in adapting
  pilot scale operations and testing to commercial scale operations.

In addition, in carrying out the pre-feasibility study with
respect to Carbon Creek, as described under the heading Item 4.D  Property,
Plants and Equipment  Carbon Creek Metallurgical Coal Deposit, British
Columbia, Canada, a number of assumptions have been made which are more
particularly described in that section. Also, in preparing the resource estimate
for Sheini, as described under the heading Item 4.D  Property, Plants and
Equipment  Sheini Hills Iron Ore Project, Ghana, a number of assumptions have
been made which are more particularly described in that section.

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.

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.

12

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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. These are the
Companys first consolidated financial statements prepared in accordance with
IFRS and IFRS 1, First-time Adoption of International Financial Reporting
Standards, has been applied. 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 a reconcilliation
to United States generally accepted accounting principles, which may not be
comparable to IFRS. Please refer to Note 15 of the Companys annual consolidated
financial statements included herein for a discussion on the impact of the
Companys transition from Canadian generally accepted accounting principles to
IFRS.

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, 2012 and 2011 and for the years ended October 31,
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 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, 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 |  
| | -------------------------------------------------- | - | -------------------------------- | -
| |                                                    |   | 2012                             |  
| |                                                    |   |                                  |  
| | Total Revenue (Interest income)                    | $ | 149,434                          |  
| | Income (loss) from operations                      | $ | (10,507,323                      | )
| | Income (loss) from continuing operations           | $ | (10,507,323                      | )
| | Net income (loss)                                  | $ | (11,594,099                      | )
| | Net income (loss) from operations per share        | $ | (0.11                            | )
| | Income (loss) from continuing operations per share | $ | (0.11                            | )
| | Basic and diluted net income (loss) per share      | $ | (0.13                            | )

13

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| |                                     |   | As
      at October 31 | 
| | ----------------------------------- | - | ---------------------- | 
| |                                     |   | 2012                   | 
| |                                     |   |                        | 
| | Total assets                        | $ | 106,301,442            | 
| | Total liabilities                   | $ | 9,074,763              | 
| | Total shareholders equity          | $ | 97,226,679             | 
| | Number of Common Shares outstanding |   | 93,416,454             | 

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:
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 February 27, 2013, the exchange rate between the Canadian
dollar and the U.S. dollar expressed in Canadian dollars per U.S. dollar was
1.0250.

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
      LowFebruary 1 through 27, 2013
    1.0280
    0.9960January 2013
    1.0078
    0.9839December 2012
    0.9952
    0.9841November 2012
    1.0028
    0.9927October 2012
    1.0004
    0.9763September 2012
    0.9902
    0.9710


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 312012
      2011
      2010
      2009
      20081.0034
      0.9846
      1.0414
      1.1673
      1.0716


3.B        
Capitalization and Indebtedness

Not applicable.

3.C        
Reasons for the Offer and Use of Proceeds

Not applicable.

14

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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, 2012 includes an explanatory paragraph stating that the Companys losses and
negative cash flows from operations and accumulated deficit at October 31, 2012
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.

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
reserves and, other than on the Carbon Creek, Sheini, Titac and Longnose
properties, 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.

15

---

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:

- these estimates will be accurate;
- reserves, 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 gold, silver or base metals, 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.

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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.

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 over certain time periods, expend
certain minimum amounts on the exploration of the properties or contribute its
share of ongoing expenditures. Failure by the Company to make such payments,
issue such shares or make such expenditures in a timely fashion may result in
the Company losing its interest in such properties. There can be no assurance
that the Company will have, or be able to obtain, the necessary financial
resources to be able to maintain all of its property agreements in good
standing, or to be able to comply with all of its obligations thereunder, with
the result that the Company could forfeit its interest in one or more of its
mineral properties.

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 Mexico, Argentina, Peru 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.

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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.

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.

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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.

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.

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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 reserves, the Company has not defined or delineated any proven
or probable 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
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.

The Company will require additional capital to meet its
capital requirements for 2013 and for future fiscal years.

The Company does not have sufficient financial resources to
undertake all of its planned acquisition and exploration programs for 2013. 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, Mexican and Argentinean pesos, Peruvian
nuevo soles and Ghanaian cedis. The Companys operations in the United States,
Mexico, Argentina, Peru 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.

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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 is
presently working on a feasibility study which may result in the refinement of
or changes to such information.

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.

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 and 2012, 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.

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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, 2012,
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.

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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 Comnpany.

As many 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.

Many of the Companys assets are located in countries where
there may be significant political risk.

The Company has mineral properties located in Peru, Argentina,
Mexico, 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 2011
and 2012, 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.

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

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 gold and other base metal 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.

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.

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 the Carbon Creek property in British Columbia,
there are currently no identified mineral reserves and, other than at the Sheini
property in Ghana and the Titac and Longnose properties in Minnesota, there are
currently no identified mineral resources, on any of the Companys mineral
properties. The Company has no known reserves under SEC Industry Guide 7
standards.

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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 2010, 2011 and 2012
financial years, 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. Some 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 2010 fiscal year, the Company wrote off $8,498,083 in acquisition and
exploration costs due to disappointing exploration results. During the 2011
fiscal year the Company wrote off $12,206,614 in acquisition and exploration
costs and during the 2012 fiscal year the Company wrote off $3,554,667 in
acquisition and exploration costs. However, the Company has retained the most
strategic of its properties and continues to look for joint venture partners to
carry out additional exploration on its non-core properties. 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 can earn a 55% working interest in the Organullo property,
and thereafter form a joint venture with Cardero Argentina. Joint venturing of
the Organullo Project is part of Carderos strategy to option-out all non-core
assets, allowing the Company to focus on development of its coal and iron ore
projects.

During the 2010 fiscal year, the Company optioned out its
Corrales and Santa Teresa properties in Mexico and its Pirquitas property in
Argentina, and has continued to seek joint venture partners for its Los
Manantiales (Mina Angela) property in Argentina. The optionee of the Mexican
properties has since returned all of these properties to the Company due to
disappointing exploration results, and the Company has, or is in the process, of
returning all such properties to their owners or surrendering them to the
Mexican government. The Company does not plan any further activities in Mexico
or Peru, and is in the process of divesting all of its remaining properties to
the Mexican government. The Company plans to dispose of its remaining assets in
Peru (none of which are mineral properties).

The sale of the Companys Pampa de Pongo Iron Ore property in
Peru completed in January, 2010 and the total sale price of USD 100 million was
received by the Company. The Company paid a finders fee to an arms length
private company in consideration of the finder introducing Cardero to the
purchaser, Nanjinzhao Group Co., Ltd., and providing ongoing advice in the
negotiations.

In keeping with bulk-commodity focus, in June, 2010, Cardero
acquired an initial interest of 49.9% in Coalhunter Mining Corporation
(Coalhunter), a private BC company. 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 (now a wholly owned
subsidiary of Cardero) 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 are reserved 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 the Carbon Creek asset. 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 a
pre-feasibility study for Carbon Creek. Also, 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. The agreement is
subject to Ridley receiving Federal Government approval for addition of a fourth
stacker/reclaimer that will increase capacity from 24 Mtpa to 30 Mtpa. Also in
2012, Cardero Coal had its Project Description accepted by British Columbia
provincial and Canadian federal regulators, thereby initiating the environmental
assessment process for Carbon Creek, a necessary step in the process to obtain a
mining permit for Carbon Creek. In January, 2013, the Company entered into an
agreement with the optionor of four coal licenses forming part (3,513 hectares)
of Carbon Creek to extend the exercise deadline of the option for a period of up
to three months. Previously, the Company was required to exercise the option on
or before January 14, 2013 by paying the option holder $5 million and issuing
400,000 Common Shares. Under the new terms, Cardero has agreed to pay 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
may extend the deadline for the exercise of the option for up to three months
(to April 14, 2013) upon payment of an extension fee of $20,000 for each month
of the extension. To date, the Company has made the initial $1 million
non-refundable deposit and the first and second $20,000 payments to extend the
option exercise deadline to March 14, 2013. See Item 4.D Property, Plants and
Equipment  Carbon Creek Metallurgical Coal Deposit, British Columbia, Canada.

25

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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 CAD 0.95 per Cardero Unit for aggregate gross proceeds
of CAD 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 CAD 1.25. All of the Cardero Warrants subsequently expired on November 29,
2012, unexercised.

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% net profits interest 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 which may be subsequently issued to Emmaland. In order to
earn its interest, Cardero will fund all expenditures under the particular joint
venture and make payments 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, which resulted in the preparation
of an initial resource estimate for a portion of the joint venture area (see
Item 4.D  Property, Plants and Equipment  Sheini Hills Iron Project, Ghana).
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, and is in the
process of negotiating an extension for such payment with the joint venture
partner. If the payment cannot be renegotiated, and the joint venture partner
elects to deliver a notice of default, then Cardero Ghana would be deemed to
have withdrawn from the joint venture 21 days after receipt of such notice of
default if it does not make the required payment prior to such time.
Accordingly, since there can be no certainty that the payment schedule can be
renegotiated, the Company has written off exploration and evaluation assets
expenditures related to the Sheini North prospecting license joint venture in
the amount of $374,716. The Company made the required payments
in order to maintain the Sheini Central and Sheini South joint ventures in good
standing until December 31, 2013.

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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 CAD 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 CAD 0.90 per Trevali Unit. Each whole Trevali Warrant will
entitle the holder thereof to purchase one Trevali Common Share at a price of
CAD 1.10 per share until January 16, 2014.

In December 2012 and January, 2013, the Company carried out
non-brokered financings of Common Shares and of flow-through Common Shares,
resulting in the issuance of 16,439,816 Common Shares to raise gross proceeds of
$7,697,957.20. In connection with such financings, the Company paid cash
finders fees of $282,517.50 and issued 114,000 finders warrants, each
exercisable to purchase one Common Share at $0.50 until December 19, 2013,
351,648 finders warrants, each exercisable to purchase one Common Share at
$0.55 until December 28, 2013 and 123,610 finders warrants, each exercisable to
purchase one Common Share at $0.50 until February 8, 2014.

During the fiscal year ended October 31, 2012 and to February
27, 2013, the Company was primarily focused on Carbon Creek (including
initiation of the 2012 drill program and preparation of the prefeasibility
study), and completion of the initial exploration program at Sheini and
preparation of the initial resource estimate. While the Company also
investigated and evaluated a number of additional potential acquisitions, none
were determined to be appropriate. The Company also continued to seek joint
venture partners for its assets other than Carbon Creek and Sheini, but no new
joint ventures were entered into and none are presently under negotiation. The
Company anticipates that its primary focus for the fiscal year ending October
31, 2013 will be on the continued exploration and development of Carbon Creek,
including preparation of a feasibility study and pursuing the environmental
assessment process as required to secure the appropriate permits for production
at Carbon Creek. The Company is presently assessing its plans for Sheini, which
may include selling or joint venturing its interest therein.

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, Mexico 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.

The Company considers that Carbon Creek and Sheini are its
material mineral properties at the present time. Information with respect to the
Companys material mineral properties 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.

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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 (with the exception of
the Sheini, Titac and Longnose properties, which have resources), or mineral
reserves (with the exception of the Carbon Creek property). 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 is conducting extensive work as part of the preparation of the 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, Mexico, Peru 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 the feasibility study currently underway is 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 the 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 the 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. In recent years, the significant demand for minerals in some
countries (notably China and India) has driven increased commodity prices to
historic highs. While 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 some commodities (including
metallurgical coal and iron ore) upward price movements have recently become
reestablished, primarily as a result of Chinese demand. It is difficult to
assess if the apparent upward momentum in several commodity prices are long-term
trends, and 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 and iron ore prices decline as a consequence, a continuing period of
lower prices could significantly affect the economic potential of Carbon Creek
(metallurgical coal) and/or Sheini (iron ore) and result in the Company
determining to cease work on, or drop its interest in, some or all of such
properties.

The Companys business is not substantially dependent on any
contract such as a contract to sell the major part of its products or services
or to purchase the major part of its requirements for goods, services or raw
materials, or on any franchise or licence or other agreement to use a patent,
formula, trade secret, process or trade name upon which its business depends. It
is not expected that the Companys business will be affected in the current
financial year by the renegotiation or termination of contracts or
sub-contracts.

There are no bankruptcy, receivership or similar proceedings
against Cardero, nor is Cardero aware of any such pending or threatened
proceedings. There have not been any voluntary bankruptcy, receivership or
similar proceedings by Cardero within the three most recently completed
financial years or completed or currently proposed for the current financial
year.

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There have been no reorganizations of or involving Cardero
within the three most recently completed financial years and no reorganizations
are currently proposed for the current financial year.

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.

Regulatory and Environmental Matters

British Columbia, Canada

Mineral Rights

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 License

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.

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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.

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.

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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.

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 and in the process of finalizing 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.

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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:

- 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, R.S.B.C., c483,
Forest Act, Land Act, Environmental Management Act, S.B.C. 2003, c 53 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.

Ghana

Mineral Rights

The basic law governing the mining industry in Ghana is the
Minerals and Mining Act 2006, Act 703 (Mining Act). This and associated
legislation combines regulation of the mining industry with fiscal incentives
for investors. Some of the more significant features of the legislation are:

All Mineral are Owned by the State

The Minister of Lands and Natural Resources of Ghana (MLNR)
grants exclusive mineral rights. Under the Mining Act, neither a landowner nor
any other person may search for minerals or mine on any land without having been
granted a mineral right by the MLNR. A summary of the types of mineral rights
that can be granted under the Mining Act is indicated below:

(a)****
A Reconnaissance Licence confers on the holder the right to search for a
specific mineral (or commodity) within the licence area by geochemical and
photo-geological surveys or other remote sensing techniques. Except as otherwise
provided in the licence, it does not permit drilling, excavation or other
sub-surface techniques. The licence is normally granted for up to one year and
may be renewed by the Minister from time to time for periods up to one year at a
time upon application by the holder. The application for renewal must be made at
least three months before the expiration of the licence. The size of the area
over which a reconnaissance licence may be granted is limited to 5,000
contiguous blocks (a block is defined as 21 hectares) or 1,050km2.

(b)****
A Prospecting Licence gives the holder the exclusive right to search for
specific minerals (or commodities) by conducting geological, geophysical and
geochemical investigations to determine the extent and economic value of any
deposit within the licence area. Drilling, excavation or other sub-surface
techniques are permitted under the prospecting license. The initial grant of the
licence is limited to three years and a maximum area of 750 contiguous blocks or
157.5 km2. A prospecting licence is granted for a period not exceeding three (3)
years and may be renewed for a maximum of two terms or for further periods of up
to three (3) years each. The holder of a prospecting licence shall, prior to or
at the expiration of the initial term, surrender not less than half the number
of blocks of the prospecting area so long as a minimum of one hundred and twenty
five blocks or 26.3km2 remain subject to the licence and the blocks form not
more than three discrete areas each consisting of a single block, or a number of
blocks each having a side in common with at least one other block in that area.
The tenures in which Cardero Ghana holds an interest are Prospecting Licenses.

33

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(c) ****A Mining Lease gives the holder the right to mine, win or extract
specified minerals (or commodities) within the lease area. The lease may be
granted to the holder of a prospecting licence or any person who establishes to
the satisfaction of the Minister that a mineral to which the lease relates
exists in commercial quantities within the proposed lease area and can be mined
at a profit. The lease is issued for up to thirty years subject to renewal for a
further thirty-year term. The size of the area in respect of which a lease may
be granted is limited to 300 contiguous blocks 63 km2 for a single grant. A
person other than the holder of a reconnaissance or prospecting licence may
apply for a mining lease in respect of a mineral specified in the application
over land that is not the subject of a mineral right for the same mineral
applied for.

Transfers of Mining Rights

No transfers of mining rights are permitted without the
approval of the MLNR. In addition, the MLNR has the power to object to a person
becoming or remaining a shareholder controller, a majority shareholder
controller or an indirect controller of a company which has been granted a
mining lease if the MLNR believes the public interest would be prejudiced by the
person concerned becoming or remaining such a controller. The Act defines a
mining company as a company which or whose subsidiary is the holder of a
mineral right (holders of mineral rights include prospecting and reconnaissance
license holders) and excludes companies listed on a stock exchange and companies
whose holding in mining companies or whose subsidiarys assets are less than 50%
of the market value of their total assets. The acquisition by Cardero Ghana of
an interest in three prospecting licenses was approved by the MLNR in April,
2012.

Application of Mineral Legislation

The Mining Act is applied equally to Ghanaians and foreigners,
except for the provisions relating to small-scale mining of minerals, which is
reserved for Ghanaians. However, foreigners can participate in the exploration
and exploitation of industrial minerals where the proposed investment is not
less than US$10 million.

Government Participation in a Mining Lease or Mining
Company

The Government is entitled to a 10% free-carried equity
interest in any mining lease. Any further participation is to be agreed with the
holder. The government has a further option to acquire a special share in a
mining company for no consideration or in exchange for such consideration as the
government and that company shall agree. This interest, when acquired,
constitutes a special share which gives the government the right to attend and
speak at any general meeting of shareholders, but does not entitle the
government to any voting rights. The special share does not entitle the
government to distributions of profits of the company which issues it to the
government. The written consent of the government is required to make any
amendment to a companys articles of incorporation relating to the governments
option to acquire a special share.

Payment of Royalties

Under the Minerals and Mining (Amendment) Act, 2010 (Act 794)
the previous variable royalty rate of between 3-6% of the gross value of
minerals produced has been fixed at 5%.

Stability and Development Agreements

Mining companies which have invested or intend to invest at
least $500 million may, as part of a mining lease, enter into a stability and/or
development agreements. A stability agreement will serve to protect the holder
of that mining lease, for a period not exceeding 15 years, against changes in
laws and regulations generally and in particular relating to customs and other
duties, levels of payment of taxes, royalties and exchange control provisions,
transfer of capital and dividend remittances. A development agreement may
contain further provisions relating to the exercise by the MLNR of any
discretion conferred on him by the Mining Act, mineral operations, environmental issues and
dispute settlement procedures. Each stability and development agreement is
subject to the ratification of parliament. As Cardero Ghana does not yet possess
any mining leases, it has not made any steps towards negotiating stability or
development agreements with respect to the properties in which it has an
interest.

34

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Localization Requirements

Holders of mining leases are required to submit a detailed
program for the recruitment and training of Ghanaians with a view to achieving
localization, which is the replacement of expatriate personnel by Ghanaian
personnel. In addition, the holder must give preference to Ghanaian products and
personnel, to the maximum extent possible, consistent with safety, efficiency
and economies. Upon termination of a mining lease, the holder may remove
moveable and immoveable assets (plant) provided that such are subsequently
used in a relevant mining activity in Ghana. Otherwise, the plant vests in the
State. The holder must exercise his rights subject to such limitations relating
to surface rights as the Minister of Mines may prescribe.

Surface Rights

Under the Mining Act, holders of mining rights are permitted to
enter upon the surface of the lands subject to such mining rights, and to
conduct such activities thereon as are appropriate to the nature of activities
permitted under the particular mining right held. The Mining Act provides that
owners or lawful occupiers of any lands subject to a mining right are entitled
to compensation from the holder of the mineral right for the disturbance of the
rights of the owner or lawful occupier. The Mining Act also establishes
principles to be taken into account in the payment of compensation to the owners
or lawful occupiers of the surface, including deprivation of the use of the
natural surface of the land, loss of or damage to immoveable property, land
under cultivation, loss of earnings or sustenance suffered by the owner or
lawful occupier and loss of expected income depending on the nature of crops and
their life expectancy. Compensation is to be determined by agreement of the
parties, but in the absence of any such agreement is to be referred to the MLNR,
who will, in consultation with the government agency responsible for land
valuation, determine the compensation. Compensation can either be in money, or
in the resettlement of an affected party to suitable alternate lands. Cardero
Ghana has paid the requisite compensation with respect to its activities to date
on its mineral properties.

Environmental

The laws and regulations relating to the environment in Ghana
have their roots in the 1992 Constitution which charges both the state and
individuals with a duty to take appropriate measures to protect and safeguard
the natural environment. Mining companies are also required, under the Mining
Act, the Environmental Assessment Regulations 1999 (LI 1652) and the Water Use
Regulations 2001 (LI 1692), to obtain all necessary approvals from the Ghana
Environmental Protection Agency (EPA), the Ghana Forestry Commission and the
Ghana Water Resources Commission before undertaking mining operations. The
Mining Act also requires the Ghanaian mines to comply with all laws for the
protection of the environment.

At the exploration level, mining companies register and, upon
review by the EPA, are given environmental permits that enable them to operate.
Under the relevant environmental laws and regulations, mining operations are
required to undergo an environmental impact assessment process and obtain
approval for an environmental permit prior to commencing operations. Within 24
months of the date upon which operations commence, mining operations must submit
an environmental management plan (EMP), for the operations to obtain an
environmental certificate. EMPs are submitted every three years and include
details regarding the likely impact of the operation on the environment,
including local communities, as well as a comprehensive plan and timetable for
actions to lessen and remediate adverse impacts.

The laws also require mining operations to rehabilitate land
disturbed as a result of mining operations pursuant to an environmental
reclamation plan agreed with the EPA. The reclamation plan provides an estimate of the costs to rehabilitate the mining area for the
life of the mine, or the life of mine rehabilitation estimate, and an estimate
of the costs to rehabilitate the mine as at the date of the reclamation plan, or
the current estimated rehabilitation costs. These estimates are adjusted every
two years, taking into account any new disturbance or rehabilitation undertaken
during the two year period from the date of the previous estimate. The
obligations to rehabilitate the mining area and to provide security for the
rehabilitation costs are included in a reclamation security agreement negotiated
with the EPA and signed by the mining company. Each mining company is required
to secure a percentage (typically between 50% and 100%) of the current estimated
rehabilitation costs by posting a reclamation bond and a cash deposit, which
serve as a security deposit against default. Updated reclamation plans are
submitted to the EPA every two years with a readjustment of the calculated bond
based on the current estimated rehabilitation costs.

35

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Exchange Controls

No person may export, sell or otherwise dispose of a mineral
unless he is the holder of a license granted by the MLNR for that purpose and
the permission of the Chief Inspector of Mines is required to remove minerals
obtained by the holder of a mineral right.

Under the Mining Act, the Bank of Ghana or the Minister for
Finance may permit the holder of a mining lease who earns foreign exchange from
mining operations to retain a percentage of its foreign exchange earnings for
certain expenses in bank accounts in Ghana, including for acquisition of spare
parts and other inputs required for mining operations which would not otherwise
be readily available without the use of the earnings. In addition, the Minister
for Finance, in consultation with the MLNR may, where the net earnings of a
holder of a mining lease from the holders mining operations are in foreign
exchange, permit such holder to maintain an account and retain in that account
not less than 25% of the foreign exchange for the acquisition of spare parts,
debt servicing and dividend payment, remittance in respect of quotas for
expatriate personnel and the transfer of capital in the event of a sale or
liquidation of the mining operations. The Mining Act guarantees the holder of a
mining lease free transferability of convertible currency through the Bank of
Ghana or, in the case of a net foreign exchange holder, through the account
referred to above.

All aspects of the Companys business require specialized
skills and knowledge. Such skills and knowledge include the areas of geology,
drilling, logistical planning, geophysics, metallurgy and mineral processing,
implementation of exploration programs, mine development, mine operation and
accounting. While recent increased activity in the resource mining industry has
made it more difficult to locate competent employees and consultants in such
fields, the Company has found that it can locate and retain such employees and
consultants and believes it will continue to be able to do so.

4.C        
Organizational Structure

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

36

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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, 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, while
reference to Cardero refers to the Canadian parent company only.

4.D        
Property, Plants and Equipment

Carbon Creek Metallurgical Coal Deposit, British
Columbia, Canada

Information in this annual report regarding Carbon Creek is
based on information provided by the technical report dated November 6, 2012,
effective September 20, 2012, entitled Technical Report, Prefeasibility Study
of the Carbon Creek Coal Property, British Columbia, Canada prepared by Norwest
Corporation (the Carbon Creek Report).

Property Description and Location

The Carbon Creek property lies approximately 60 kilometers (km)
northwest of the town of Chetwynd, BC and 40km west of the town of Hudsons
Hope. Improved forest service roads connect the property with British Columbia
Highway 29 between the towns of Chetwynd and Hudsons Hope. The CN Rail line
connecting Fort St. John and Tumbler Ridge areas with Prince George passes 40km
south of the property. The CN Rail line provides direct access to the ports of
Vancouver and Ridley Terminals in Prince Rupert, BC. The northern end of the
property is adjacent to the Williston Lake and is approximately 175km east of
Mackenzie, BC by water.

37

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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) 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 (ha).

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.

The CGDLs, totalling approximately 2,600ha, are controlled by
Peace River Partnership (PRP), an Alberta partnership. Cardero Coal has
entered into an option, and made all requisite payments, to acquire a coal lease
over the freehold (private) coal resources under the CGDL from PRP.

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 and the Company now has the option to acquire all
of the shares of such company 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 has agreed to pay 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 may 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. To date, the Company has made the initial $1 million
non-refundable deposit and the first and second $20,000 payments to extend the
option exercise deadline to March 14, 2013.

38

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Cardero Coal has entered into a joint venture agreement with
CCP, in which Cardero Coal will have a 75% net proceeds interest and CCP will
have a 25% net proceeds 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 net profit interest which requires
Cardero Coal to fund the exploration, development, construction and operation of
the mine. However, CCP will not receive any of its share of the proceeds 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.

Cardero 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

The Carbon Creek property 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.

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

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Figure
2: Carbon Creek Tenures

40

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History

During the period 1908 to 1951 coal exploration and evaluation
at the Carbon Creek property 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 Coalhunter Mining Corporation (Coalhunter), now called Cardero Coal
Ltd., completed an eight-hole validation drilling program. The positive results
permitted the Utah drilling data to be used in the estimation of a NI 43-101
compliant resource estimate. Starting in August 2011 Cardero Coal initiated an
in-fill drilling, surface mapping and bulk sampling program.

In June 2011, Norwest Corporation (Norwest) estimated a
mineral resource using historic (pre-2010) and 2010 validation drilling data
only. In this report, an estimated total m i n e r a l resource of 114.0 million
tonnes (Mt) of Measured and Indicated plus 89.1Mt of Inferred resources were
identified from twelve coal seams within license application areas north of
Eleven Mile Creek and west of Carbon Creek. This resource report was followed up
by a NI 43-101 Preliminary Economic Assessment (PEA) report that was completed
by Norwest in December 2011. In this PEA report, 166.7Mt of Measured and
Indicated plus 167.1Mt of Inferred mineral resources were estimated within the
same area outlined in June 2011 report. The increase in resource tonnes from the
previous June 2011 report is mostly attributed to decreases in minimum seam
thickness and increase in maximum depth from surface for surface mining. A total
of 137Mt from the PEA mineral resource was identified by Norwest as extractable
utilizing underground and surface mining methods after the application of mining
loss and dilution factors.

Cardero Coal initiated an in-fill drilling, surface mapping and
bulk sampling program that was conducted from August to December, 2011. The data
generated from the 2011 field program was incorporated into the geologic model
which forms the basis of mineral resource and reserve estimates presented in
this annual report.

Geologic Setting and Mineralization

The Carbon Creek property 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 the Carbon Creek property 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 Carbon Creek 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 the Carbon Creek property
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.

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TABLE1.1 AVERAGETHICKNESS ANDUNDILUTEDRAWCOALQUALITYOVERRESOURCEAREA

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
      629
      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.

Deposit Types

Based on the available data and existing geological
interpretation, Norwest has determined coal mineralization to be of the Moderate
geology type.

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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.

TABLE1.2 EXPLORATIONMETHODS

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
    Coalhunter
    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.

Cardero Coal conducted a multi-rig exploration program during
2012, targeted at expanding the measured plus indicated resource base and
further defining potentially mineable areas within the previously defined
resource areas. Results of this exploration will be incorporated into the
geologic model which will be updated for the Feasibility Study.

Sample Preparation, Analysis and Security

The sample data used in this study is restricted to analyses of
slim core samples and bulk samples and excludes pre-1971 surface-derived
samples.

Field sampling, handling and transport of drill core samples by
Coalhunter and Cardero Coal were observed to be in accordance with industry best
practice. Norwest believes that 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 Coalhunter and 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. The coal seams that
are believed to have sufficient bulk sample analyses for detailed washability
and metallurgical characterization are discussed in the Processing Section of
the Carbon Creek Report. 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.

43

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Data Verification

Norwest personnel were directly involved in the field sampling
and management of Coalhunter and Cardero Coal drilling programs and the relevant
Qualified Persons (QPs) conducted site inspections during these exploration
campaigns. The Coalhunter twin hole verification drilling program was able to
replicate results of the earlier Utah drilling program from the 1970s.

Mineral Processing and Metallurgical Testing

Projected Coal Handling and
Preparation Plant Design

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 will be stored in multiple
dome-covered stockpiles with aggregate capacity of about 350,000t with live
reclaim systems. The reclaimed ROM coal is fed to the coal preparation plant and
will be screened. Oversize ROM will be fed to a rotary breaker rotary breaker
which will destone and size the coal.

The CPP will be single-module operation rated to accept a
nominal 1200 tonnes per hour (tph) of raw feed. The CPP will 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 will 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 was chosen to avoid the need
for a thermal dryer.

Parallel to the heavy media bath will be three additional
processes. A large-diameter heavy media cyclone will 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 will employ column flotation for the
minus 45 micron range of material; this can be bypassed when processing lower
value thermal coals.

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

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

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. At the time of the Carbon Creek Report Seams
14 and 15 were being drilled but no laboratory results were available.

Norwest developed a washability study testing protocol 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.

44

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Seam Characterization

Samples of each of the major seams collected in the bulk large
diameter (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. As noted above, primary
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.

These inconsistencies indicate a possible seam correlation
error. To resolve this issue, petrographic fingerprint comparisons with other
drill cores into Seam 40 are planned. The salient clean coal quality data based
on the laboratory results for Seams 14 through 40 are listed in Table 1.3.

The remaining seams above Seam 40 are targeted as semi-soft or
pulverized coal injection (PCI) coals. Of particular note are Seams 46 and 47.
These mid-vol coals are low ash and may be suitable candidates for a PCI market.
The key quality characteristics based on laboratory results of these upper seams
can be found in Table 1.4.

TABLE1.3 HARDCOKINGCOALQUALITYCHARACTERISTICSFROMSSP

SeamParameter
      Basis
      40
      31
      27
      15
      14Proximate analysisMoisture
      ad
      0.8%
      1.1%
      0.7%
      1.0%
      1.0%Ash
      ad
      8.5%
      5.0%
      6.1%
      3.1%
      5.4%Volatile matter
      ad
      31.3%
      27.2%
      26.4%
      25.6%
      23.0%Volatile matter
      dmmf
      35.0%
      29.1%
      28.6%
      26.9%
      24.8%Fixed carbon
      ad
      59.5%
      66.8%
      66.8%
      70.3%
      70.6%Sulphur
      ad
      1.3%
      0.7%
      0.8%
      0.9%
      0.8%Phosphorus
      ad
      0.05%
      0.04%
      0.10%
      0.06%
      0.13%Hardness index (HGI)
      
      ~55
      ~60
      ~68
      ~69
      ~71Caking and Plasticity TestsCSN/FSI - Lab Results
      
      7
      6
      5 1/2
      4 1/2
      5 1/2CSN/FSI - Process Simulated
      
      6 1/2
      5 1/2
      5 1/2
      5 1/2
      5 1/2CSN/FSI - Process Simulation
        adjusted
      
      
      
      
      7
      7Gieseler Plastometer TestMax fluidity
      ddpm
      21
      6
      5
      1.9
      3Dilatometer Test(Ruhr)Max contraction
      %
      20%
      22%
      22%
      23%
      22%Max dilation
      %
      18%
      -12%
      -
      -
      -


45

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Petrographic analysisVitrinite reflectancemean maximum,
      Romax
    %
    0.94%
    1.04%
    1.16%
    -
    -V-typesV-8
    
    21%
    1%V-9
    
      67%
    18%V-10
    
    12%
      65%
    12%
    1%V-11
    
    
    16%
      70%
    11%
    10%V-12
    
    
    
    18%
      87%
      77%V-13
    
    
    
    
    1%
    10%V-14
    
    
    
    
    
    3%Composition Balance Index
    
    0.38
    0.85
    0.83
    1.63
    1.83Base  Acid Ratio of Ash
    
    0.16
    0.18
    0.05
    0.35
    0.14CarbonizationPetrographic PredictionDI 30/15 (JIS)
    
    86.2%
    93.8%
    94.2%Stability (ASTM)
    
    31.0%
    54.0%
    61.0%Coke TestsCSR
    
    42.3%
    53.3%
    64.1%CRI
    
    36.6%
    34.0%
    26.3%ASTM Coke Tumbler TestStability
    
    
    
    
    48.0%
    54.0%Hardness
    
    
    
    
    63.0%
    54.0%


|Notes: | (1) | A particular seam typically only contains 3 main V-types,
      with the centre one comprising the majority type for that seam, which is
      highlighted in yellow in the table.
|------ | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | (2) | Petrographic analysis had yet to be performed on seams 14
      and 15                                                                                                            

TABLE1.4 SEMI-SOFTCOKING/ PCI COALCHARACTERISTICS

SeamParameter
      Basis
      58B
      58A
      55
      54
      52
      51A
      51
      47
      46Proximate analysisMoisture
      ad
      1.5%
      1.1%
      1.2%
      0.9%
      1.3%
      1.0%
      1.5%
      1.0%
      0.9%Ash
      ad
      6.0%
      4.5%
      4.6%
      2.9%
      6.7%
      3.0%
      5.8%
      5.0%
      2.5%Volatile matter
      ad
      30.9%
      31.3%
      30.6%
      29.1%
      31.8%
      29.2%
      30.2%
      25.5%
      26.5%Volatile matter
      dmmf
      33.7%
      33.5%
      32.8%
      30.5%
      35.1%
      30.6%
      32.9%
      27.4%
      27.6%Fixed carbon
      ad
      61.6%
      63.2%
      63.6%
      67.2%
      60.2%
      66.8%
      62.5%
      68.5%
      70.1%Sulphur
      ad
      0.8%
      0.9%
      0.7%
      0.8%
      1.3%
      0.7%
      0.8%
      1.2%
      0.8%Phosphorus
      ad
      0.05%
      0.01%
      0.09%
      0.02%
      0.04%
      0.02%
      0.03%
      0.02%
      0.01%Hardness index (HGI)
      
      ~48
      ~52
      ~48
      ~47
      ~50
      ~52
      ~52
      ~52
      ~52Caking and Plasticity Tests


46

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CSN/FSI - Lab Results
      
    3
    3
    2 1/2
    2
    3 1/2
    2
    2 1/2
    2
    2 1/2CSN/FSI - Process Simulated
      
    3
    3 1/2
    2 1/2
    2 1/2
    3 1/2
    3 1/2
    3
    2 1/2
    3GieselerPlastometer
      TestMax fluidity
    ddpm
    1.9
    0.6
    1.7
    1.5
    2.5
    1
    1.5
    0.7
    0.5Dilatometer Test (Ruhr)Max contraction
    %
    27%
    13%
    25%
    26%
    28%
    17%
    3%
    5%
    15%Max dilation
    %
    -
    -
    -
    -
    -
    -
    -
    -
    -Petrographic analysisVitrinite reflectancemean maximum, Romax
    %
    0.90%
    0.89%
    0.94%
    0.96%
    0.89%
    0.91%
    0.95%
    1.01%
    0.99%V-types
    %V-7
    
    
    6%
    
    
    10%
    2%V-8
    %
      47%
      49%
    20%
    14%
      48%
      45%
    21%
    9%
    14%V-9
    %
      46%
      41%
      69%
      55%
      40%
      48%
      61%
      41%
      41%V-10
    %
    7%
    4%
    11%
    31%
    2%
    5%
    18%
      34%
      33%V-11
    %
    
    
    
    
    
    
    
    16%
    12%V-12Composition Balance Index
    %
    0.62
    0.57
    0.7
    1.28
    0.71
    1.17
    0.93
    1.67
    1.35Base  Acid Ratio of Ash
      
    0.06
    0.27
    0.07
    0.06
    0.33
    0.07
    0.63
    0.12
    0.14CarbonizationPetrographic PredictionDI 30/15 (JIS)
    
    89.6%
    86.2%
    91.4%
    91.7%
    89.6%
    90.4%
    92.6%
    89.6%
    92.0%Stability (ASTM)
    
    38.0%
    31.0%
    43.0%
    44.0%
    38.0%
    40.0%
    47.0%
    38.0%
    45.0%Coke TestsCSR
    
    
    
    
    
    
    
    
    
    1.1%CRI
    
    
    
    
    
    
    
    
    
    60.8%


|Notes: | (1) | A particular seam typically only contains 3-4 main
      V-types, with the centre one(s) comprising the majority type for that
      seam, which is highlighted in yellow in the table.
|------ | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Projected Product Quality

Norwest applied the Carbon Creek washability data collected
from the LD cores and other historical sources to its Limn flowsheet simulation
software to develop the process design for the CPP and plausible 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 1.5 lists the projected product qualities for the hard
coking coal seams.

47

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TABLE1.5 HARDCOKINGCOALTARGETPRODUCTQUALITY

Seam
    Inherent
      Moisture
    Surface
      Moisture
    Total
      Moisture
    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 1.6 lists the projected product qualities for the
candidate PCI, semi-soft coking and/or thermal coal seams.

TABLE1.6 CANDIDATEPCI,
SEMI-SOFTCOKING& THERMALCOALTARGETPRODUCTQUALITIES

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 of the Carbon Creek property 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 Coa l 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 1.7 breaks these resources into surface and underground tonnes.

Cautionary note to U.S. investors concerning estimates of
inferred, measured and indicated resources. This section uses the terms
inferred resources, measured resources and indicated resources. The
Company advise 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.

48

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TABLE1.7 CLASSIFICATION OFRESOURCE CARBONCREEKPROPERTY SEPTEMBER20,2012

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


The current resource estimate represents a substantial increase
in coal resource tonnes from the Norwests PEA estimates (2011). The increase is
due to inclusion of additional drill hole data in the resource calculations that
was previously not available to Norwest. This data was used to identify an
additional 14 seams of economic potential and provided sufficient spatial
coverage for the expansion of the resource area to the east of the Carbon Creek
and south of Eleven Mile Creek.

Mineral Reserve Estimates

Based on the geological model developed by Norwest a general
mining layout was prepared for surface, highwall and underground mining areas.
Applying mining parameters, as discussed in Section 16 of the Carbon Creek
Report and economic analysis as discussed in Section 22 of the Carbon Creek
Report, a coal reserve tonnage estimate was developed for each mining method as
shown in Table 1.8.

TABLE1.8 COALRESERVES
THROUGHYEAR20  SEPTEMBER20, 2012

Mining Method
    ROM Tonnes
      (millions)
    Saleable Tonnes
      (millions)Surface
    56
    38Highwall
    14
    7Underground
    52
    33Combined Total
    121
    78


The accuracy of resource and reserve estimates is, in part, a
function of the quality and quantity of available data and of engineering and
geological interpretation and judgment. Given the data available at the time the
Carbon Creek Report was prepared, the estimates presented herein are considered
reasonable. However, they should be accepted with the understanding that
additional data and analysis available subsequent to the date of the estimates
may necessitate revision. These revisions may be material. There is no guarantee
that all or any part of the estimated resources will be recoverable. Mineral
resources are not mineral reserves and there is no assurance that any of the
additional mineral resources in this report that are not already classified as
reserves will ultimately be reclassified as proven or probable reserves. Mineral
resources which are not mineral reserves do not have demonstrated economic
viability. The Company has no known reserves under SEC Industry Guide 7
standards.

Mining Methods

The nature of the geology of the Carbon Creek Project lends
itself to employing several mining methods to maximize the recovery of the
resource and the resultant project economics. 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, all mining methods will be employed
concurrently throughout the 20 year mine plan.

49

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Surface mining is 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 Carbon Creek
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.

Surface contour mining is projected to begin first in 2014
simultaneously in the North and Central areas which will allow areas for
highwall and underground mining to be developed. Surface contour mining in
anticipated to continue throughout the Life-of-Mine (LOM). Surface area mining
is projected to commence in 2016 in both the North and Central areas of the mine
and i s also projected to continue for the LOM. Highwall mining is also
anticipated to commence in 2016 in both areas of the mine. Underground mining is
projected to commence in 2016 in the North area of the lease with one continuous
miner (CM) unit operating and ramping up to a projected six CM units by 2019.

ROM production from the Northern Surface Mine, including
highwall mining, is anticipated to range from 1.1Mtpa to 1.8Mtpa and is
anticipated to average 1.4Mtpa over the mine life. The ROM strip ratio is
projected to average 12 to 1. Overburden is expected to be removed using two
22m3class excavators and eight 173t class haul trucks operating on a
seven day, 20 hour per day schedule. One highwall mining unit is anticipated to
operate producing a pro je ct ed 450,000tpa. Clean coal production is expected
to be hard coking coal except for a small amount of thermal coal produced from
the oxidized zone along the crop lines. Clean coal production is anticipated to
range from 0.6 to 1.3Mtpa and is anticipated to average 0.9Mtpa over the LOM.

ROM production from the Central Surface Mine, including
highwall mining, is projected to range from 1.4Mtpa to 3.8 Mtpa and is
anticipated to average 2.3Mtpa over the LOM. The ROM strip ratio is projected to
average 7 to 1. Overburden is expected to be removed using two 22 cubic meter
(m3) class excavators and eight 173 tonne class haul trucks operating
on a seven day, 20 hour per day schedule. One highwall mining unit is
anticipated to operate producing a projected 450,000 tonnes per year. Clean coal
production is expected to be semi-soft coking coal except for a small amount of
thermal coal produced from the oxidized zone along the crop lines. Clean coal
production is anticipated to range from 0.8 to 3.0Mtpa and i s a n t i c i p a t
e d t o average 1.5Mtpa over the LOM.

Production from the underground mine operations is projected
from five separate seams. ROM production varies with coal thickness and seam
gradient. Underground mining operations are planned to be conducted to a minimum
coal seam thickness of 1.2m. Underground mining is anticipated to initiate with
Seam 15 in 2016 and is anticipated to expand with Seam 14 in 2018 via separate
sets of portals for each seam. The portal locations for Seam 15 and Seam 14 are
approximately three kilometres north of Seven Mile Creek. Production is
projected to start with one CM unit in 2016 and is anticipated to ramp up to six
CM units by 2019. As mining reserves in Seam 15 and Seam 14 are expected to
deplete beginning in 2025, CM units are re-located south to the three sets of
portals for seams 31, 27 and 40. Provisions for reduced productivity due to the
initial low experience levels of the underground mine workforce has been
included in the estimated project economics for the first three years of
underground mining operations. ROM production, subsequent to the three year ramp
up, is anticipated to range between 2.6Mtpa to 3.3Mtpa and is anticipated to
average 3.0Mtpa. Clean coal saleable product from the underground mining
operations is expected to be hard coking coal and is projected to range from
1.6Mtpa to 2.1Mtpa with an anticipated average saleable production rate of
1.9Mtpa.

Projected ROM and clean coal production by area and mining type
is summarized in Table 1.9 below.

50

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TABLE1.9
LIFE-OF-MINEPRODUCTION BYAREA ANDMININGTYPE

ROM Tonnes (millions)
    Saleable Tonnes (millions)Northern Surface MineArea Mining
    17
    11Contour Mining
    5
    3Highwall Mining
    5
    3Total Northern Surface Mine
    27
    17Central Surface MineArea Mining
    27
    19Contour Mining
    8
    5Highwall Mining
    8
    4Total Central Surface Mine
    43
    28Underground Mines
    51
    33Combined Total
    121
    78


Projected Project Infrastructure

Coal from the underground mine portals in the north and south
of the property will 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 will 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 will be trucked to the truck tip, and will be 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 has been made for emergency ROM stockpile areas in addition to the
storage domes.

Following beneficiation, the respective clean coal products
will 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 will 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 will be located adjacent to the plant site at Carbon Inlet. Each of
the underground mine portals will be serviced by satellite warehouses and
personnel facilities.

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

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

Access to the mine site will be via the Johnson Creek Forestry
Service Road which will be upgraded to accommodate the anticipated high volume
of personnel transport and material delivery vehicles.

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Market Studies and Contracts

Market Study

An independent market analysis was prepared. A summary of the
results and conclusions from that market analysis is noted below.

Based on washability testing of coals from the Carbon Creek
property, three products have been 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 US$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 US$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.

The recent coking coal settlement for the October  December
2012 quarter represents the lowest price since the onset of the quarterly price
regime. Only a gradual improvement is expected over the next 12 months as the
production cutbacks announced by Australian and U.S. majors start to take
effect, and assuming a modest recovery in demand flowing from the stimulus
package announced by the Chinese government.

A series of analysts price forecasts were combined with an
independent price outlook to arrive at the following long term projected price
scenarios for the Carbon Creek products:

TABLE1.10 LONGTERMPRICEFORECAST

Carbon Creek Coals  Long Term Price
        Forecast(US$ per tonne)
      Low Case
      Base Case
      High CaseHard Coking Coal
      165
      200
      217High Vol Metcoal
      113
      137
      148Thermal Coal
      96
      115
      119


Contracts

Cardero Coal has entered into a contract with Ridley Terminals
(RTI) which provides port capacity for Cardero Coal for a portion of the
projected coal sold from the Carbon Creek Property. 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 500,000tpa
through 2014, increasing to 900,000tpa in 2015. The agreement with RTI allowed
the port authority an option to wait before committing to the contracted
tonnage. This commitment has subsequently been provided to Cardero Coal by RTI.

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Environmental Studies, Permitting, and Social or Community
Impact

Safety and Health

Cardero Coal commits to the application, fostering and
continual development of a safety culture for all employees, consultants and
contractors, the tracking and reporting of health and safety performance
measures and progress towards the development of corporate and
operation-specific Health and Safety Management System, to be established
throughout mine development and operations, consistent with the OHSAS 18001
standard. The H&S policy has been applied to all field activities undertaken
during the 3-year exploration drilling program, and elements of a more
comprehensive and widely-applied corporate H&S program have, and continue
to, evolve, as the Project expands in scope.

Environment, Permitting &
Sustainable Development

Cardero Coal will develop corporate and operation-specific
Environmental Management Systems throughout proposed mine development and
operations, consistent with the ISO 14001 standard; and apply the appropriate
standards of environmental performance consistent with Mining Association of
British Columbia Environmental Principles and the Mining Association of Canadas
Toward Sustainable Mining elements.

Production at the proposed Carbon Creek Metallurgical Coal Mine
is anticipated to exceed 250,000tpa and will therefore be regulated under the
BC Environmental Assessment Act (BCEAA). Additionally, large resource
projects are subject to regulation by several provincial regulatory programs
including those administered by the Ministry of Energy and Mines (MEM), and the
Ministry of Environment (MOE). Depending on the type of operation and potential
impacts on natural resources or infrastructure, coordination with the federal
agency responsible for completing Environmental Assessments (EA)  specifically,
the Canadian Environmental Assessment Agency (CEAA) under the Canadian
Environmental Assessment Act- will also likely be required. If the project
fails to qualify for exemption under the new Designated Project Regulationsthere may be requirements for permitting by one or more of the federal
agencies. Applicable federal statutes that may trigger the need for permits
include: the Fisheries Act(Fisheries and Oceans Canada (DFO)) the
Migratory Birds Act, the Navigable Waters Protection Actand the
Explosives Act(Natural Resources Canada). The BCEAAand CEAAprocesses were initiated with the submission and acceptance of a Project
Description. This process will ultimately conclude with the issuance of an
Environmental Assessment Certificate (EAC) that will allow the project to move
forward to obtain permits from other regulatory agencies as set out below.

The key component of the Carbon Creek EA process is the
collection of environmental baseline data within the Carbon Creek Project area,
as required by the pre-application EA process. Programs initiated to-date
include:

- Fisheries and wildlife monitoring
- Long-term water and sediment quality sampling and analysis
- Long-term monitoring programs for baseline climate, air/noise, and
  hydrology
- Hydrogeological studies
- Socioeconomic studies
- Paleontological and archaeological studies (an Archaeological Overview
  Assessment (AOA) has been completed; an Archaeological Impact Assessment (AIA)
  is now in progress).

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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
was submitted on July 5, 2012. Completion of the AIR - subsequent to further
review by a technical Working Group and public consultation - is anticipated by
Q4 of 2012, followed by the submission of an effects assessment report (Q1
2013), and submission of the final EAC Application by June 2013.

Cardero Coal is placing special emphasis on the evaluation of a
number of potential environmental effects, 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 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 Actand 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 use of a transportation
  route within Williston Lake, and potential impact to fish habitat in the Lake
  and tributaries of Williston Lake including Carbon Creek, 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.

The certification and permitting schedule, which will encompass
most of the project permits required, is anticipated to be as follows:

Environmental Assessment Certificate (EAC)Submission of EA report/application to the EAO and CEAA
    June 2013Review by EAO and CEAA
    June 2013 May 2014Decision from Minister of Environment
    June 2014PermittingSubmission of applications for construction-phase permitsand associated permits
    June 2013Submission of applications for operational and
      closure-phase


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permits and associated mine and effluent permits
    December 2013Construction-phase permit issuance
    February 2014Operational-phase permits issuance
    August 2014


Community and Stakeholder Consultation

Cardero Coal will 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.

In conjunction with other EA activities, 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.

Capital and Operating Costs

Capital

Assumptions regarding capital expenditures are detailed in
Section 21 of the Carbon Creek Report. Capital required to bring the project to
full production are estimated to total US$475M and include coal handling, coal
preparation, train loadout facilities, surface facilities, site access and
power, and mine development and contingency. Capital requirements to first
production are estimated to total US$217M. All major surface and underground
mining equipment is assumed to be leased with varying terms for underground and
surface mining equipment. The total value of the mining equipment being leased
is anticipated to be US$180M. Annual lease payments at full production are
estimated to total US$27M and US$19M for surface equipment and underground
equipment respectively for the duration of the respective five and three year
terms. All equipment is assumed to be purchased at the end of the lease term for
the stated residual value. Replacement equipment is assumed to be leased under
the same terms.

Total capital excluding leased equipment is anticipated to be
US$839M over the LOM. Lease payments for mining equipment are estimated to total
US$338M over the LOM.

Manpower

Projected manpower requirements to operate and maintain the
surface and underground mines and coal processing plant are shown in Table 1.11.

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TABLE1.11 MANPOWERREQUIREMENTSSURFACEMINE
ANDUNDERGROUNDMINE ATSTEADYSTATE

Area
    Hourly Workers
    Management
    TotalsMine Management and Administration
    0
    41
    41Surface Mine
    244
    36
    280Underground Mine
    397
    91
    488Prep Plant
    58
    9
    67Totals
    699
    177
    876


Operating Costs

Operating costs have been estimated for the surface, highwall
and underground mines based on required equipment hours, labour hours and
materials and supplies and estimated contract rates as applicable to each mining
method. These costs are shown in Table 1.12 on a unit basis for each mine and
the CHPP.

TABLE1.12      
CASHOPERATINGCOSTS

Cost Area
    US$/Clean tonneSurface Mining  Northern Area
    75Surface Mining  Central Area
    48Highwall Mining
    42Underground Mining
    69Average Direct Mining Costs (Including equipment lease
      payments)
    61Indirect Costs
    13Total Cash Costs
    74


Economic Analysis

Norwest prepared an economic model in US$ that captures direct
costs, including labour, equipment, materials, production taxes and royalties.
Indirect costs including corporate overhead, mineral tax and property tax were
added to the model along with depreciation of purchased equipment and
facilities. A cash flow calculation was prepared on an after tax basis using an
average FOB price of US$174 per saleable tonne and an average clean coal
production of 4.1Mtpa. Clean coal production is anticipated to increase from
0.75Mtpa to 3.5Mtpa over the first five years of production and then anticipated
to average 4.4Mtpa, ranging from 2.7Mt to 5.2Mt, for the remaining mine life of
15 years.

Pre-production cash outflows are anticipated to total US$243M
over the estimated two year initial development and construction period. It is
anticipated that production begins in Q4 2014 with coal being sold in 2015.
Construction is anticipated to continue through 2015 with an estimated
additional cash outflow of US$210M for an estimated total of US$453M through
complete development and construction. Cash flow is anticipated to be positive
beginning in 2016 and payback is projected to occur approximately 7 years after
the initial cash outflow. After payback and providing for the net profits
interest, cash flow is anticipated to average US$145M per year for an estimated
total net cash flow of US$2.1B over the LOM for Cardero Coals 75% interest.

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The internal rate of return (IRR) for Cardero Coals 75%
interest in the Carbon Creek Joint Venture is anticipated to be approximately
24%. Net present values (NPV) at 8%, 10% and 12% are shown in the Table 1.13.

TABLE1.13 NPV RESULTSCARDEROCOALS75%
INTEREST(US$M)

Interest Rate
    8%
    10%
    12%NPV
    US$633
    US$466
    US$338


The internal rate of return for the entire property is
anticipated to be approximately 27%. Net present values at 8%, 10% and 12% are
shown in Table 1.14.

TABLE1.14 NPV RESULTS100%
INTEREST(US$M)

Interest Rate
    8%
    10%
    12%NPV
    US$878
    US$658
    US$492


Sensitivity Analysis

Sensitivity of the economics regarding coal sales price, direct
mining costs capital expenditures and equipment leasing were evaluated. The
results are summarized in Table 1.15.

TABLE1.15 SENSITIVITYANALYSIS(US$M)

IRR
    NPV at 8%
    NPV at 10%
    NPV at 12%Base Case
      Pricing
    24%
    US$633
    US$466
    US$338High Case
      Pricing
    27%
    US$819
    US$616
    US$462Low Case
      Pricing
    13%
    US$192
    US$99
    US$3110% Increase in Direct Mining Costs
    22%
    US$551
    US$397
    US$28110% Increase in Capital Costs
    22%
    US$605
    US$438
    US$312Buy vs Lease
      Equipment
    22%
    US$620
    US$447
    US$315


Table 1.16 summarizes the key results of the Carbon Creek
Report.

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TABLE1.16 CARBONCREEKPROJECTKEYPARAMETERS

Resource Measured & Indicated
    Mt
    468Resource Inferred
    Mt
    232Underground Reserve Tonnes
    Mt
    51Mean Plant Recovery
    %
    64%Underground Clean Coal Tonnes
    Mt
    33Surface Mineable Tonnes
    Mt
    70Mean Plant Recovery
    %
    65%Surface Clean Coal Tonnes
    Mt
    45Total Clean Coal Tonnes Produced
    Mt
    78Surface Mining Minimum Seam Thickness
    M
    0.6Surface Mining Average Strip Ratio  Northern Surface Mine
    Ratio
    12:1Surface Mining Average Strip Ratio  Central Surface Mine
    Ratio
    7:1Underground Mining Minimum Seam Thickness
    M
    1.2Underground Mining Overall Extraction
    %
    53Full Production Rate Clean Coal per Year (2016-2034)
    Mt/yr
    4.1Capital Costs to First Production  (With Equipment
      Leasing)
    US$M
    US$217Capital Costs to Full Development
    US$M
    US$475Sustaining Capital LOM
    US$M
    US$364Value of Leased Equipment
    US$M
    US$180Northern Surface Mine OPEX ROM Basis
    US$/t
    51Central Surface Mine OPEX ROM Basis
    US$/t
    33Highwall Mining OPEX ROM Basis
    US$/t
    17Underground Mine OPEX ROM Basis
    US$/t
    44Northern Surface Mine OPEX Clean Coal Basis
    US$/t
    75Central Surface Mine OPEX Clean Coal Basis
    US$/t
    48Highwall Mining OPEX Clean Coal Basis
    US$/t
    42Underground Mine OPEX Clean Coal Basis
    US$/t
    69Processing OPEX
    US$/t
    4Average direct mine costs (incl. equipment lease) Clean
      Coal Basis
    US$/t
    61Haul, Rail & Port Costs
    US$/t
    37FOB Cost
    US$/T
    98FOB Price Long-Term Base Case
    US$/t
    174Gross Revenue LOM
    US$M
    13,620Operating Costs LOM
    US$M
    9,001Pre-Tax Operating Cash Flow LOM
    US$M
    4,619Post-Tax NPV 8 (75% Basis)
    US$M
    633Internal Rate of Return (75% Basis)
    %
    24Post-Tax NPV 8 (100% Basis)
    US$M
    878Internal Rate of Return (100% Basis)
    %
    27Total Undiscounted Post-Tax Cash Flow (75% Basis)
    US$M
    2,133


Significant Factors and Risks

The exploration and future mining operation does not utilize
unique technologies that might be subject to challenge by third parties.
However, the project 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.
Based upon information provided by Cardero Coal, engagement has been initiated
to obtain FN support for early project activities (i.e., exploration program).
This engagement continues. FN members are employed in the ongoing exploration
program, 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. None of
these issues appear to represent insurmountable hurdles, and given a pro-active
approach with good process management, the project should be able to advance
beyond this PFS to the Feasibility stage of investigation.

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Interpretation and Conclusions

Conclusions

Based on the results of the PFS, Norwest has reached the
following conclusions:

- There are sufficient mineable tonnes of various grades of metallurgical
  and thermal coal in the Carbon Creek resource area to produce approximately
  4.1Mtpa saleable coal for a 20 year period.
- No fatal flaws have been identified at this stage of project development.
- Pre-production capital costs, estimated at US$217M will be required to
  bring this project into production. Additional capital estimated at a total of
  US$475M will be required to bring the project to full production. Sustaining
  capital of US$364M is estimated to be required over the remaining life of the
  mine.
- Operating costs per tonne of clean coal are anticipated to average US$74.
- At the base p r o j e c t e d price scenario for the various products
  averaging U S $174, this Project is anticipated to generate positive cash
  flows and achieve an IRR on investment of 24%.

Recommendations

Development Drilling

The results of the 2012 drilling program should be included in
the geological database and a new geological model produced for the Feasibility
Study.

Mine Planning Refinement

Additional refinement of the geologic model along with a
detailed mine plan is recommended and will yield a revised and more accurate
recoverable reserve base. This work should be completed at the Feasibility level
of project evaluation. Optimum production plans and methods should be analyzed.
One example for further study is to examine the applicability of underground
longwall mining rather than room and pillar mining.

CHPP Design and Construction

Prior to proceeding with the project for detailed design and
construction, Norwest recommends that additional studies be performed to better
characterize the coals to ensure proper equipment design. The best available
information and best practices were implemented in the design of the system,
although additional information will supplement the database for final design.

Additional studies and recommended data include:

- Washability study with large diameter cores collected during 2012 field
  program.
- Further metallurgical characterization of main seams and potential blends.
- Materials characteristics tests for the projected refuse materials.

59

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- Environmental loads including temperature ranges, wind load, and expected
  snow and rain precipitation are being collected and when the results are
  available they should be used for additional detailed design.

Geotechnical Studies

Geotechnical sampling and detailed core logging have been
conducted in the 2011 drilling program and continued with the 2012 drilling
program. The data is being used to develop a current rock mechanics database.
This data should be used to further refine the mine plans for both surface and
underground mines.

A full investigation of the foundation material around the
plant and surface facilities area as well as the waste impoundment area is
required. Anecdotal information was used in this design study using best
practices and information from similar projects in the area, although site
construction will require further studies. Detailed geotechnical data was
collected as part of the 2012 field program.

Water Supply  Hydrology

Additional work on the property should include well completions
and pump tests for defining groundwater characteristics and establishing monitor
wells for baseline permitting data.

A water recovery and aquifer study will be required prior to
project implementation. For this study, it was assumed that a sufficient supply
will be available.

This PFS includes general assumptions with regard to surface
water management plans and structures. A surface water management plan will need
to be developed using site specific data relative to precipitation, ground water
interception from mining, mine plans, surrounding topography and drainages.

Carbon Creek  Proposed Work

During the fiscal year ending October 31, 2013, the Company
proposes, subject to obtaining the required financing, to continue to work on
the Feasibility Study for Carbon Creek, including undertaking a large diameter
and geotechnical drilling program and coal quality testing. In addition, the
Company will continue to seek to negotiate agreements with respect to the
required infrastructure for development and mining at Carbon Creek, including
transportation, loading facilities, power, as well as continuing with
negotiations with applicable First Nations regarding impact benefit agreements.
The Company will also continue the work required to move forward through the
environmental assessment process.

Sheini Hills Iron Ore Project, Ghana

Information in this annual report regarding Sheini is based on
information provided by the Technical Report dated January 14, 2013, effective
January 14, 2013, entitled Mineral Resource Estimate for the Sheini Hills Iron
Project, Ghana prepared by SRK Consulting (UK) Limited (the Sheini Report).

Location

The Sheini Hills Iron Project is located in the Zabzugu-Tatale
District in the Northern Region of the Republic of Ghana. The project area is
situated in the eastern part of the Northern Region, close to the border with
Togo and approximately 400 km north of Accra. Tamale, Ghanas second largest
city, with a population of approximately 360,000, lies 170 km west of the
project area. Access to site from Tamale is by a paved road as far as Yendi and
then by a series of all-weather roads. The terrane of the Sheini project area is
characterized by a series of steep ridges surrounded by slightly undulating,
semi-open savannah woodland.

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Property Description and Ownership

The project area consists of three contiguous prospecting
licences, which define a cumulative licence area of 397.5 km2. The
prospecting licences were issued to and are held by Emmaland Resources Ltd
(Emmaland). Cardero Ghana has entered into three separate joint ventures with
Emmaland (effective as of 12 December 2011) to explore and, if warranted,
develop the lands subject to the prospecting licences.

Data Quality

As part of its work, SRK Consulting (UK) Limited verified that
the data provided by Cardero Ghana is sufficiently robust for use in deriving a
Mineral Resource Estimate. This included viewing drillholes at the core shed in
order to check the quality of logging, along with cross-checking assay
certificates against the database. Cardero Ghana has conducted what is
considered to be industry best practice in relation to the QAQC checks and has
developed a systematic process in which duplicates, blank material, and standard
reference materials are inserted into the sample stream at regular intervals.

Figure 3: Sheini
Hills Project Location

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Geology and Mineralization

Iron mineralization at Sheini occurs as primary Ironstone
(banded and granular types with local hardcap development) and as Detrital iron
deposits (located on plains, peripheral to the Ironstone deposits). Primary iron
mineralization identified at Sheini, being classed as a Rapitan-type iron
formation, predominantly comprises bladed hematite with lesser iron hydroxides
(goethite and limonite) confined to interbedded banded iron formation and
granular iron formation at the base of the Late Precambrian  Early Phanerozoic
Buem Formation. The Ironstone package and adjacent footwall and hanging wall
lithologies have been subjected to ductile deformation resulting in a series of
broadly N-S trending asymmetric inclined fold structures, offset by a series of
NNE-SSW trending, and later E-W to ENE-WSW trending, brittle faults. The iron
mineralization is sedimentary in origin, and extends to a total of approximately
8.6 km along strike, up to 1.2 km across strike and to depths of up to 300 m
from surface.

Geological Model

Geological modelling was conducted in 3D Geomodeller software,
using logged Ironstone (which groups together both banded and granular iron
formation) as an explicit control on model geometry. Fresh Ironstone was
modelled within three spatially distinct domains  north zone (zone 100),
central zone (zone 200) and south zone (zone 300), all of which lie within the
Sheini Central licence. Geological mapping, sectional interpretations (by both
Cardero Ghana and SRK geologists) and both downhole and surface structural
measurements were used to help model the geometry of the orebody between
drillholes on and between sections.

In addition to primary Ironstone mineralization, re-deposited
Detrital material forms extensive flat-lying platforms adjacent to N-S trending
ridges throughout the project area. Detrital wireframes were generated in
Leapfrog Mining software. Surficial weathered Ironstone or Hardcap wireframes
were generated in CAE Datamine Studio 3 software and based on logging in Cardero
Ghanas lithological drillhole log.

Figure 5 shows the modelled Ironstone and Detritals.

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Figure
4: Sheini Hills Project Tenure

63

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Figure 5: Oblique
view (36° towards 325°) of the Detrital wireframes (blue) with Ironstone
domains 100-300 (pink) overlain on the topography survey.

Mineral Resource Estimate

A 4 m composite file was used in a geostatistical study
(variography and Quantitative Kriging Neighbourhood Analysis  QKNA) that
enabled Ordinary Kriging (OK) to be used as the main interpolation method. Due
to the current structural interpretation of the Sheini Hills Iron Project, which
incorporates a series of asymmetric fold structures, SRK adopted the Unfold
technique to enable the drillhole file to be converted into a flat plane, with
the aim of improving on the quality of the geostatistical results. Unfolding was
not considered necessary for the Detrital and Hardcap domains. The results of
the variography and the QKNA were utilized to determine the most appropriate
search parameters.

The interpolated block model was validated through visual
checks and a comparison of the mean input composite and output model grades. SRK
is confident that the interpolated block grades are a reasonable reflection of
the available sample data on both global and local scales.

Mineral Resource Statement

The Mineral Resource Statement generated by SRK has been
restricted to all classified material falling within the Whittle shell
representing the optimisation parameters outlined above and above a cut-off
grade of 15% Fe. This represents the material which SRK considers has reasonable
prospect for eventual economic extraction potential based on the Whittle
optimisation analysis. Table 1.17 shows the resulting Mineral Resource Statement
for Sheini Hills.

Mineral Resources were estimated in conformity with generally
accepted CIM Estimation of Mineral Resource and Mineral Reserve Best Practices
Guidelines. It has an effective date of January 7, 2013. TheMineral Resources are not Mineral Reserves and do not have
demonstrated economic viability. The Mineral Resources discussed herein may be
affected by subsequent assessments of mining, environmental, processing,
permitting, taxation, socio-economic, political and other factors. There is
insufficient information available to assess the extent of which the Mineral
Resources may be affected by these factors.

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In total, and including the Ironstone, Detrital material and
Hardcap, SRK has reported an Inferred Mineral Resource of 1.3 billion tonnes
(Bt), with mean grades of 33.8% Fe, 6.0%Al2O3, 37.3%
SiO2and 0.27% P. The resource statement has reported above a
cut-off grade of 15% Fe and within an optimized pit shell. The optimized pit
used to constrain this estimate has a strip ratio of 0.93 (waste tonnes : ore
tonnes).

Cautionary note to U.S. investors concerning estimates of
inferred resources. This section uses the term inferred resources. The
Company advises U.S. investors that this term is not recognized by the SEC. 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. The Company has no known reserves under SEC Industry
Guide 7 standards.

Table 1.17: Mineral Resource Statement for the Sheini
Hills Iron Ore Project Reported above a 15% Fe cut-off and within an
optimized pit shell

Zone
    Resource
      Category
    Tonnes (Mt)
    Fe %
    Al2O3%
    SiO2%
    P %Ironstone Sheini Central - North
    Inferred
    349.2
    37.6
    4.4
    34.3
    0.26Ironstone Sheini Central - Centre
    Inferred
    111.1
    34.6
    5.2
    38.0
    0.28Ironstone Sheini Central - South
    Inferred
    581.0
    33.9
    5.4
    37.2
    0.36Ironstone Hardcap
    Inferred
    4.1
    36.5
    8.5
    32.3
    0.09Ironstone Total
    Inferred
    1,045
    35.2
    5.1
    36.3
    0.32Detritals
    Inferred
    266.9
    28.2
    9.5
    41.1
    0.09TOTAL
    Inferred
    1,312
    33.8
    6.0
    37.3
    0.27


Notes:(1) Mineral Resources which are not
Mineral Reserves have no demonstrated economic viability (2) The effective
date of the Mineral Resource is January 7,2013(3) The Mineral
Resource Estimate for the Sheini deposit was constrained within lithological
solids and within a Lerchs-Grossman optimized pit shell defined by the following
assumptions; pig iron flow sheet; metal price of USD400/t; slope angles of 53o
in the Ironstone and Detrital material; a mining recovery of 95.0%; a mining
dilution of 5.0%; a base case mining cost of USD2.50/t; process operating costs
of USD2.50/t ore USD4.50/t ore in the Ironstone and Detrital respectively;
Ironstone processing recovery of 100%; Detrital processing recovery of 25%;
reductant costs of USD0.58/t%Fe and other concentrate costs of USD33.33/t;
smelting costs were separated into power and other costs and were estimated at
USD27.50/t and USD51.00/t, respectively; 90% assumed product grade

65

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(4) Mineral Resources for the Sheini Hills deposit have been
classified according to the CIM Standards on Mineral Resources and Reserves:
Definitions and Guidelines (December 2005) by an independent Qualified Person
(as defined in NI 43-101) employed by SRK.

Metallurgical Testwork

SRK has initiated and reviewed a certain amount of
metallurgical testwork on samples collected from the deposit so as to determine
whether or not the material has potential to be used to produce a saleable
product and so enable it to report the above Mineral Resource Estimate.

Mineralogical investigations conducted as part of the SRK
supervised testwork programme indicate the presence of haematite and quartz as
the dominant mineral species in the Ironstone unit. Scanning Electron Microscopy
(SEM) analysis indicated that the haematite is present as very fine plate-like
particles, with a face diameter of the order of 5-10 μm, cemented in a silicate
matrix.

As a consequence of the very fine haematite grain size, no
significant upgrading was able to be achieved by conventional separation
processes including gravity separation at coarser sizes together with magnetic
separation at finer sizes. Additional testwork including flotation (both
direct for haematite recovery, and reverse for silica rejection) and
selective flocculation did not suggest any potential for significant separation
and upgrading.

In parallel with the SRK supervised programme, CMTL has
conducted some metallurgical testwork at its in-house facility. The first test
result reported to SRK was a smelting test using CMTLs in-house smelting
technology. This test was conducted on a sample of Ironstone with a head grade
of 37% Fe. The smelting test resulted in the production of a pig iron product of
reasonable quality, although the P content was high. The economic analysis
provided by CMTL for the smelting test suggested that the process would generate
a positive operating margin; the magnitude of which would be enhanced if the
smelting process was fed with material of a higher grade than the global run of
mine ore.

Subsequent testwork results provided to SRK consisted of a
magnetising roast test conducted on the Ironstone sample. The principle behind
this process is to convert the haematite to magnetite by roasting the ore under
reducing conditions, and then to separate the magnetite by conventional Low
Intensity Magnetic Separation (LIMS). This testwork resulted in the upgrading
of the roasted material from 37% Fe to just under 50% Fe, with a corresponding
reduction in silica content.

In summary, the Ironstone does not respond to conventional
separation processes due to the fine, and finely disseminated, nature of the
haematite mineralization, although the Detrital material does show some
potential for conventional processing. Given the very fine liberation size of
the haematite, even if a high degree of liberation can be achieved, such as by
converting the haematite to magnetite, most physical separation processes are
very inefficient and non-selective at such a fine liberation size. While direct
smelting is a potential option from a technical viewpoint, any upgrading that
could be achieved prior to smelting would improve the economics of the smelting
process.

SRKs conclusions, based on the above, are that while there is
potential for the mineralization identified to be used to generate a saleable
product, this will not be via a conventional flow sheet and further testwork
will be required to prove this.

Conclusions and Recommendations

The primary aim of the Sheini Report was to generate a Mineral
Resource Estimate for the Sheini Hills iron asset owned by Cardero Ghana using
all available and valid data.

66

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It is the opinion of SRK that the quantity and quality of
available data is sufficient to generate Inferred resources and that the Mineral
Resource Statement has been classified in accordance with the Guidelines of NI
43-101 and accompanying documents 43-101.F1 and 43-101.CP. It has an effective
date of January 7, 2013.

In total, and including the Ironstone, Detrital material and
Hardcap, SRK has reported an Inferred Mineral Resource of 1.3 Bt, with mean
grades of 33.8% Fe, 6.0%Al2O3, 37.3% SiO2and 0.27% P. The resource statement has reported above a cut-off grade of
15% Fe and within an optimized pit shell. The optimized pit used to constrain
this estimate has a strip ratio of 0.93 (waste tonnes:ore tonnes).

The Mineral Resource Statement generated by SRK has been
restricted to all classified material falling within the Whittle shell
representing a metal price of USD400/t following the assumption that the raw,
unbeneficiated Ironstone is smelted together with beneficiated Detrital material
to produce a high phosphorous pig iron product, this being the flow sheet most
supported by the metallurgical testwork completed to date. This represents the
material which SRK considers has reasonable prospect for eventual economic
extraction.

SRK recommends to Cardero Ghana that it makes additional
metallurgical testwork its priority to confirm the technical viability of one of
the process routes being studied and the nature of the products that will be
produced. Furthermore, and with the benefit of future metallurgical data, SRK
recommends that Cardero Ghana then undertakes a Preliminary Economic Assessment
(PEA) to determine the potential economics of the project, inclusive of a market
study to ensure that the envisaged product meets market requirements, prior to
undertaking any additional resource definition drilling.

SRK recommends the following work programme be undertaken:

Phase I: Additional metallurgical test work in order to
finalize the processing flowsheet. Product specification will be a critical
factor in determining the future direction of the project, whether it is
production of a commercially saleable concentrate or hot metal/pig iron
products.

Phase II: On completion of the metallurgical test work,
a PEA is recommended to assess the economics of the project.

Phase III: Contingent on positive PEA results,
additional drilling will be required to test multiple targets to the south
(18,000 m drilling over 24 km strike length) and extensive drilling will be
required to move Inferred Mineral Resources to the Indicated and Measured
categories.

Phase I detailed metallurgical work will be completed during
Quarter 1, 2013. Cardero Ghana has allocated a budget of CAD 300,000 to complete
this work which SRK deems appropriate. Several samples are currently being
shipped from Ghana to CMTL.

Detrital samples from four reverse circulation samples will be
combined into one 220 kg sample. Ironstone samples will comprise three separate
metallurgical tests.

A series of tests will be run on metallurgical samples each
following the basic principles of the magnetizing roast flow sheet. Conditions
in each stage of the flow sheet will be varied to determine the optimal
combination. Coarse grind size will be tested at 4.0 mm, 2.0 mm and 0.25 mm.
Magnetising roast will be varied according to two temperatures (900°C or 1100°C)
and various rotary hearth furnace residence times.

Grade and recovery will be analysed to determine the optimal
concentrate which will be used as feedstock for bench-scale box-furnace melt
tests, to simulate the pig iron that could be produced in an electric arc
furnace.

SRK considers the planned testwork appropriate.

67

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Sheini  Proposed Work

During the fiscal year ending October 31, 2013, the Company
proposes, subject to raising the necessary financing, to carry out the
recommended metallurgical testing. Depending upon the results obtained, the
Company will assess the appropriate next steps with respect to the project,
which may include joint venturing or selling its interest.

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 property
interests are held for the purposes of exploration for precious and base metals.
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.                                                                                                                                                                                                                     

68

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5.A         
Operating Results

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 the current
  period 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 the current year;
- 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;
- 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 the current year;
- 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 the current year
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:

69

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- 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 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, 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 Gold Ltd. (Abzu) in
  the current year of $754,917 versus unrealized loss on warrants of Trevali,
  Abzu and Kria Resources Ltd. (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 Resources Ltd. (Indico), and Dorato
  Resources Inc. (Dorato) common shares, the Company recorded impairment
  losses of $3,687,101 (2011 - $11,335,318). These changes are due to market
  fluctuations which are entirely outside of the Companys control;
- The Company recognized an impairment loss of $1,112,726 from amounts dues
  from related parties Wealth and Dorato. The Company assessed that they are
  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 owns 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. To date, 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.
Over the past fiscal year, the Company has also successfully generated operating
funds through the sale of certain of its resource related investments, some of
which have 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. In addition, the
Company can raise funds through the sale of interests in its exploration and evaluation assets (as, for example, with the
sale of the Pampa de Pongo project, which raised $88,372,433 net of costs in the
2010 fiscal year).

70

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The Company expects that it will operate at a loss for the
foreseeable future, notwithstanding the income recognized from the sale of
resource based investments. The Company currently has no funding commitments or
arrangements for additional financing at this time (other than the proposed loan
from Sprott Resource Lending Partnership (Sprott)  noted below  or the
potential exercise of outstanding options or warrants or the sale of some or all
of its investments) and there is no assurance that the Company will be able to
obtain additional financing on acceptable terms, if at all. There is significant
uncertainty that the Company will be able to secure any additional financing
required for the development of any of its exploration and evaluation assets, or
to develop any advanced properties that it may acquire. The quantity of funds to
be raised and the terms of any proposed equity financing that may be undertaken
will be negotiated by management as opportunities to raise funds arise. Specific
plans related to the use of proceeds will be devised once financing has been
completed and management knows what funds will be available for these purposes.
The ability of the Company to carry out its planned activities, including the
balance of the 2013 work program at Carbon Creek, the preparation of a
feasibility study for Carbon Creek and ongoing activities at Sheini, as well as
the ability to meet upcoming option payments in respect of Carbon Creek and
Sheini, is dependent upon the Company securing additional sources of equity or
debt financing. Although the Company has negotiated a loan facility with Sprott
Resource Lending Partnership (see below) and is currently in discussions with a
number of entities regarding potential additional debt and/or equity financings,
no agreements have yet been reached and there can be no assurance that any
arrangements for debt and/or equity financing transactions will be successfully
concluded. Failure to conclude and complete any such arrangements within a
reasonable timeframe could result in the Company having to severely curtail its
operations and lead to the loss of its interests in its current mineral
properties. The Companys losses and negative cash flows from operations and
accumulated deficit at October 31, 2012 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.

On October 22, 2012 the Company executed a term sheet for up to
$11,000,000 non-revolving reducing term loan credit facility agreement with
Sprott Resource Lending Partnership (Sprott). It is expected the facility will
be for the actual principal amount of up to $7,700,000 (due to the reduction in
the gross proceeds to be raised under certain private placements by the Company,
see below) at an interest rate of 12 per cent per annum, compounded and payable
monthly, and due and payable in full on or before the first anniversary of the
closing of the loan financing. Provided that the loan is in good standing and
that Sprott is satisfied with the value of the security, the repayment of the
loan may be extended for an additional year for a cash fee of 3% of the
outstanding amount if the loan balance is $4,772,727 or more or 2% if less. In
consideration of the facility, the Company will, on closing, pay to Sprott a
bonus payment equal to 3% of the actual loan amount, such payment to be
satisfied by the issuance of Common Shares at a deemed price of $0.45 per share.
A structuring fee in the amount of $110,000 has also been paid to Sprott. As
security for the loan, Sprott will be granted a first charge over the Companys
shares of Cardero Coal. In addition, the loan will be guaranteed by Cardero
Coal, which will pledge all of its interest in Carbon Creek and related assets
to secure such guarantee. The Company needs to raise a minimum of $7,000,000
under certain private placements noted below in order to trigger the Sprott loan
credit facility. Proceeds of the Sprott loan are required to be applied to (a)
exercise the option to acquire the 4 coal licenses held by Alan Johnson
($4,000,000) and (b) as to the balance, to continue the development and
advancement of Carbon Creek. Closing of the facility is subject to the
satisfactory completion of due diligence by Sprott, the settlement and execution
of formal documentation by all parties, including certain third parties
(currently underway), the acceptance for filing by the TSE and approval of the
NYSE MKT with respect to the issuance of the bonus shares, and the completion of
the private placements noted below. The Company is unable to predict the
potential closing date for the Sprott loan, and there can be no certainty that
the Sprott loan will, in fact, be closed.

71

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On December 19, 2012, the Company closed the first tranche of a
proposed 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 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. On February 8, 2013 the Company closed the second and final tranche of the
Offering. The Company issued 2,472,222 shares to raise gross proceeds of
$1,112,500. In connection with this second closing, 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.

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.

As at October 31, 2012, the Company reported cash and cash
equivalents of $2,142,499 compared to $5,985,634 at October 31, 2011. The change
in cash and cash equivalents over the period is comprised of funds used by
investing activities of $3,483,026 and $8,450,198 from operations, and
$8,085,482 provided by financing activities due to proceeds from shares issued.
As at October 31, 2012, the Company had working capital of $82,287 compared to
working capital of $13,556,780 at October 31, 2011.

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, Mexico, Argentina 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.

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.

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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, 2012.
The Company does not have any long-term debt or loan obligations as at October
31, 2012. 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.

ContractualObligations
      Payments Due by Period(1)Total
      Less than 1Year(Prior toOctober 31,2013)
      1-3 Years(November1, 2013 toOctober 31,2016)
      3-5 Years(November
        1,2016 toOctober 31,2019)
      More than 5Years(November1, 2019 toOctober 31,2022)Operating Lease Obligations
      $4,308,942
      $411,127
      $1,666,293
      $1,496,972
      $734,550Total
      $4,308,942
      $411,127
      $1,666,293
      $1,496,972
      $734,550


(1) Assumes CAD and USD at par.

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 are as follows:

Name
    Position
    Period of Service as Director orExecutive Officer(1)Michael Hunter(4)
    President, Chief Executive Officer and Director
    President since June 1, 2011; Chief Executive
      Officer since November 9, 2011; Director since September 13, 2012Hendrik Van Alphen
    Managing Director
    Director since April 19, 1999Leonard Harris(2)(3)(4)(5)
    Director
    Since February 25, 2000Stephan A. Fitch(2)(3)(4)(5)
    Director
    Since May 31, 2006Paul Matysek(3)
    Director
    Since September 13, 2012


73

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Name
    Position
    Period of Service as Director or
      Executive Officer(1)Ryan Dunfield(2)(5)
    Director
    Since September 13, 2012Lawrence W. Talbot
    Vice-President and General Counsel
    Since July 1, 2006Blaine Bailey, CGA
    Chief Financial Officer
    Since November 9, 2011Keith Henderson, EurGeol
    Executive Vice President
    Since March 1, 2007Angus Christie
    Chief Operating Officer
    Since June 1, 2012Glenn Hoffman
    Chief Executive Officer and President of
      Cardero Iron Ore Company Ltd.
    Since August 23, 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.                                                                                                                                     
|(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.                                                                                                 

Michael Hunter (President, Chief Executive
Officer and Director)  Mr. Hunter has more than 25 years experience in the
coal mining sector, which includes pit operations, plant operations and coal
quality analysis. He has previously founded two successful coal companies; one
of which, First Coal Corporation, was purchased by Xstrata for $137M in July,
2011, and has played a leading role in assisting Canadian coal companies to
raise in excess of $100 million. In 2008, Mr. Hunter founded Coalhunter Mining
Corporation (CMC) where he was instrumental in securing the rights to the
Carbon Creek coal asset; which led to the Company acquiring CMC. Mr. Hunters
operational experience includes working for many years at the Luscar Sterco mine
in Alberta and subsequently at Tecks Bullmoose mine in BC where he was involved
in plant and pit operations, respectively. Following his employment at
Bullmoose, he worked on the buy side for Canadian Dehua Trading Corporation
where he developed an extensive network in China and then became active in
assembling land positions and exploration activities for coal companies with an
interest in Northeastern BC.

Hendrik Van Alphen(Managing Director)  Mr. Van
Alphen has been in the mining business for over 27 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,
was the Chief Executive Officer of the Company from May 14, 2001 to November 9,
2011 and President of the Company from April 10, 2000 to June 1, 2011. He is
presently the President and Chief Executive Officer and a director of Wealth
Minerals Ltd. and a director of Ethos Capital Corp. and Balmoral Resources Ltd.,
all companies listed on the TSX Venture Exchange.

Leonard Harris(Director)  Mr. Harris is a
professional engineer with a Metallurgy diploma and 52 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.

74

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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 27 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.

Paul Matysek(Director)  Mr. Matysek is the
former CEO and Founder of Lithium One Inc. Under Mr. Matyseks stewardship,
Lithium One Inc. developed a leading lithium brine resource in Argentina and was
recently acquired by Galaxy Resources Ltd. (July 2012). Previously, Mr. Matysek
was the co-founder, CEO and President of Energy Metals Corporation (EMC) (2005
to August 2007). Under Mr. Matyseks stewardship, EMC, a pure uranium mining and
development company, was acquired by Uranium One Inc. in a billion dollar plus
transaction. He is also the former President and CEO of Potash One Inc., a
Saskatchewan based potash exploration company (November 2007 to March 2011)
acquired by K+S Aktiengesellschaft in March 2011 for $450 million in an all cash
deal. A professional geoscientist with more than 25 years international
experience, Mr. Matysek holds a Master of Science degree in Geology. He is a
recognized entrepreneur, specializing in developing resource-based companies
from conception to production, and has held or holds senior management and/or
director positions with several natural resource exploration and development
companies. Mr. Matysek is currently a director of Nevada Copper Corp., Aurcana
Corp. and a number of other natural resource companies.

Ryan Dunfield(Director)  Mr. Dunfield is
  Vice President with the Vancouver, B.C. private equity group Second City Capital
  Partners, and its affiliate, Gibralt Capital Corporation. Mr. Dunfield is heavily
  involved with the acquisition and divestiture of portfolio companies within
  the resource sector. Previous to Second City Capital Partners, Mr. Dunfield
  worked in the debt capital markets, with exposure to corporate banking, leveraged
  finance and loan syndications. Mr. Dunfield received a Bachelor of Economics
  and Finance from the University of Calgary.

Lawrence W. Talbot (Vice President and General
Counsel)  Mr. Talbot is a mining lawyer with over 27 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 20 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.

75

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Keith Henderson, EurGeol (Executive Vice
President)  Mr. Henderson, formerly Vice President Exploration, of Cardero,
brings 19 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.

Angus Christie (Chief Operating Officer) 
  Mr. Christie is a highly respected senior executive with over 25 years international
  experience in coal mining operations, resource and reserve management, mine
  development and exploration and strategic planning. In his career, Mr. Christie
  has been involved in several projects from exploration and feasibility through
  to mine commissioning. His operational experience has been focused on both underground
  and surface operations extending from deposits this includes five underground
  and open pit mines. He most recently served as Manager, Strategy and Resources
  for Anglo Coal (Peace River Coal).

Glenn Hoffman (Chief Executive Officer and
President of Cardero Iron Ore Company Ltd.)  Mr. Hoffman has extensive iron
processing experience covering 30 years at Midrex/Kobe Steel as manager R&D
and Coal based technologies. Midrex is a leading international process
engineering and technology company. He was instrumental in the development of a
variety of new innovative iron-making technologies which has enabled Midrex to
become the undisputed global leader in direct reduced iron (DRI) and associated
next generation technologies. Mr. Hoffman has been involved in the
engineering/construction/operation of four next generation DR & iron making
plants across the globe and instrumental in 14 U.S. patents on processing
technology. He joined Cardero in 2007 and is the 2010 recipient of the Society
for Mining, Metallurgy and Exploration  Material Process Division Antoine
Gaudin award for technology innovations applied to the minerals processing
industry.

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 February 27, 2013, 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
    PositionMichael Hunter
    Remstar Resources Ltd
    DirectorHendrik Van Alphen
    Wealth Minerals Ltd. Ethos
      Capital Corp. Balmoral Resources Ltd. Indico Resources Ltd.
    President, Chief Executive
      Officer and Director Director Director DirectorLeonard Harris
    Canarc Resource Corp.
      Solitario Exploration & Royalty Corp. Indico Resources Limited
      Orovero Resources Corp. Coronet Metals Inc.
    Director Director
      Director Director DirectorStephan A. Fitch
    None


76

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Name
    Name of Company
    PositionPaul Matysek
    Dundarave Resources Inc.
      Forsys Metals Corp. Aurcana Corporation West African Iron Ore
      Corp. Nevada Copper Corp. Ocean Park Ventures Corp. Goldrock
      Mines Corp. Wealth Minerals Ltd.
    Director Director
      Director Director Director Director Director
      DirectorRyan Dunfield
    Alston Energy Inc. Solimar
      Energy Limited
    Director DirectorLawrence W. Talbot
    Remstar Resources Ltd.
      Balmoral Resources Ltd. Minaurum Gold Inc. Pedro Resources
      Ltd.
    Director Director
      Director DirectorBlaine Bailey
    Geodex Minerals Ltd. Qumana
      Software Inc. Jet Gold Corp. Arrowstar Resources Ltd.
    Chief Financial Officer
      Director and Chief Financial Officer Director Chief Financial
      OfficerKeith Henderson
    Remo Resources Inc.
      Providence Resources Corp.
    Director DirectorAngus Christie
    NoneGlenn Hoffman
    None


6.B          Compensation

Executive Compensation

For the fiscal year ending October 31, 2012, the Company paid
an aggregate of $1,544,167 in cash compensation to its Directors and senior
management as a group.

Under applicable Canadian securities laws, Cardero is required
to disclose the compensation paid to its Chief Executive Officer, Chief
Financial Officer and each of the three most highly compensated executive
officers, or individuals acting in a similar capacity, as of the end of
Carderos most recently completed financial year, whose total compensation
exceeded $150,000. In the case of Cardero, the compensation of Michael Hunter
(President and Chief Executive Officer), Hendrik Van Alphen, Managing Director,
Blaine Bailey (Chief Financial Officer), Lawrence W. Talbot (Vice President and
General Counsel) and Keith Henderson (Executive Vice President) as of the end of
the Companys most recently completed financial year is required to be disclosed
(collectively, such individuals are referred to as the Named Executive
Officers or NEOs). The following table sets out the compensation paid to the
Named Executive Officers for the fiscal years ended October 31, 2012 and 2011.

77

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Name and principal position
      Fiscal year ended October 31
      Salary (CAD)
      Share- based awards (CAD)
      Option- based
        awards (CAD)(1)
      Non-equity incentive plan compensation
        (CAD)
      Pension value
        (CAD)
      All other compensation(CAD)
      Total **compensation**
        (CAD)Annualincentive plans
      **Long-term** incentive
        plans(5)Michael Hunter(2)
        (President and 
        Chief Executive 
        Officer)
      2012 
        2011
      267,500 
        33,333
      nil 
        nil
      741,712 
        1,060,079(8)
      25,000(3)
        35,000(4)
      nil 
        nil
      nil 
        nil
      nil 
        nil
      1,034,212 
        1,128,412Blaine Bailey(6)
        (Chief Financial 
        Officer)
      2012 
        2011
      183,333 
        n/a
      nil 
        n/a
      399,467 
        n/a
      10,000(3)
        n/a
      nil 
        n/a
      nil 
        n/a
      nil 
        n/a
      592,800 
        n/aHendrik Van 
        Alphen(2)
        (Managing 
        Director)
      2012 
        2011
      180,000 
        180,000
      nil 
        nil
      265,137 
        98,375
      25,000(3)
        280,000(4)
      nil 
        nil
      nil 
        nil
      nil 
        nil
      470,137 
        558,375Keith Henderson 
        (Executive Vice 
        President)
      2012 
        2011
      nil 
        82,500
      nil 
        nil
      194,739 
        134,399(9)
      nil 
        187,500(4)
      nil 
        nil
      nil 
        nil
      255,000(10)
        nil
      449,739 
        404,399Lawrence W. 
        Talbot 
        (Vice President 
        and General 
        Counsel)
      2012 
        2011
      100,000 
        100,000
      nil 
        nil
      92,388 
        60,538
      15,000(3)
        200,000(4)
      nil 
        nil
      nil 
        nil
      87,500(7)
        82,500(7)
      294,888 
        443,038


|(1) | Fair value of incentive stock option grants calculated
      using the Black-Scholes model based on the following assumptions:
      -         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 companies in the Companys peer group and therefore represents an
      approach to valuation reasonably consistent with the Companys peer group.
      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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(2) | Mr. Van Alphen resigned as President of the Company on
      June 1, 2011 and as CEO of the Company on November 9, 2011. Mr. Hunter was
      appointed as President of the Company on June 1, 2011 and as CEO of the
      Company on November 9, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(3) | These amounts represent cash bonuses awarded during the
      fiscal year ended October 31, 2012. These amounts reflect a discretionary
      regular annual bonus, in an amount equal to their base salaries for
      Messrs. Hunter, Bailey, Van Alphen and Talbot.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

78

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|(4)  | 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 $35,000, and Mr. Henderson also
      received a bonus of $27,500, from Cardero Coal in connection with the
      successful conclusion of the transaction with the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(5)  | LTIP or long-term incentive plan means any plan that
      provides compensation intended to motivate performance to occur over a
      period greater than one fiscal year, but does not include option or
      share-based awards. Cardero does not have any such plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(6)  | Mr. 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 July 1, 2006
      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 100,000 (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). On May 1,
      2007, the July 1, 2006 retainer agreement was replaced with a new retainer
      agreement, which is the same as the previous retainer agreement in all
      material respects, except that the minimum annual retainer was reduced to
      CAD 82,500. During the fiscal year ended October 31, 2012, the Company
      paid LWTLC CAD 87,500 for legal services (including fees, disbursements
      and taxes) (2011  82,500).
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(8)  | This amount represents the value (calculated as noted in
      (1) 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
      (1) 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

During the fiscal year ended October 31, 2012, the following
stock options were granted to the Named Executive Officers:

Name
    Securities under options
      granted (#)
    Option exercise price
      ($)
    Option expiration
      dateMichael Hunter
    200,000 200,000 125,000
    1.10 1.51 0.78
    November 9, 2013 January 26, 2014
      September 27, 2014Blaine Bailey
    90,000 50,000 27,000 250,000
    1.10 1.51 1.16 0.78
    November 9, 2013 January 26, 2014
      March 23, 2014 September 27, 2014Hendrik Van Alphen
    200,000 300,000 250,000
    1.10 1.51 0.78
    November 9, 2013 January 26, 2014
      September 27, 2014Lawrence W. Talbot
    50,000 100,000 125,000
    1.10 1.51 0.78
    November 9, 2013 January 26, 2014
      September 27, 2014Keith Henderson
    95,000 75,000 250,000
    1.10 1.51 0.78
    November 9, 2013 January 26, 2014
      September 27, 2014


79

---

The following table sets forth details of all exercises of
stock options during the financial year ended October 31, 2012 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
    953,000/428,000
    118,775/118,775Blaine Bailey
    nil
    nil
    637,000/220,000
    55,063/55,063Hendrik van Alphen
    nil
    nil
    912,500/nil
    nil/nilLawrence W. Talbot
    nil
    nil
    375,000/nil
    nil/nilKeith Henderson
    nil
    nil
    480,000/60,000
    9,250/9,250


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
as its Managing Director on a part-time basis (75% of his working time) at a
salary of $180,000 per year. Cardero paid Mr. Van Alphen $180,000 (2011 
$180,000) during the fiscal year ended October 31, 2012. 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).

80

---

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. Cardero paid Mr. Talbot $100,000
(2011  $100,000) during the fiscal year ended October 31, 2012. 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.

3.          
Cardero has entered into a letter agreement (to be followed by formal
documentation) dated March 22, 2012 with Angus Christie pursuant to which
Cardero has agreed to employ Mr. Christie as its Chief Operating Officer on a
full-time basis at a salary of $260,000 per year. Cardero paid Mr. Christie
$108,333 (2011  nil) during the fiscal year ended October 31, 2012. Pursuant to
such agreement, the Company may terminate Mr. Christie upon two weeks notice plus one
additional week for every completed consecutive year of employment, to a maximum
of 26 weeks.

81

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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, 2012.

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, 2012, the persons
  serving as Directors who were not also executive officers of Cardero received
  the following Directors fees:

Name
    Fees earned
      ($)Leonard Harris
    48,000Stephan A. Fitch
    48,000Paul Matysek(1)
    8,000Ryan Dunfield(1)
    8,000Murray Hitzman(1)
    48,000


|(1) | Mr. Hitzman ceased to be a director at the commencement
      of the annual general meeting held on September 14, 2012. Messrs. Matysek
      and Dunfield were appointed as Directors of the Company at the annual
      general meeting held on September 14, 2012.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

82

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Directors who are not also executive officers of the Company
are also eligible to receive stock options. During the fiscal year ended October
31, 2012, the following stock options were granted to the Directors who are not
also executive officers of the Company:

Name
    Securitiesunder optionsgranted(#)
    Option exerciseprice($)
    Option expirationdateLeonard Harris
    50,000 150,000
    1.16 0.78
    March 23, 2014 September 27, 2014Stephan A. Fitch
    40,000 160,000
    1.16 0.78
    March 23, 2014 September 27, 2014Paul Matysek
    200,000
    0.78
    September 27, 2014Ryan Dunfield
    200,000
    0.78
    September 27, 2014Murray Hitzman
    nil
    nil
    n/a


The following table sets forth details of all exercises of
stock options during the financial year ended October 31, 2012 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
    200,000/nil
    nil/nilStephan A. Fitch
    nil
    nil
    200,000/nil
    nil/nilPaul Matysek
    nil
    nil
    200,000/nil
    nil/nilRyan Dunfield
    nil
    nil
    200,000/nil
    nil/nilMurray Hitzman
    nil
    nil
    nil/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)Ryan DunfieldLeonard Harris

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. Under
the NYSE MKT Company Guide each of the members of the Audit Committee:

83

---

| | (a) | must be independent in accordance with both the
      independence standards specified in Section 803A of the NYSE MKT Company
      Guide and Rule 10A-3 under the Securities Exchange Act of 1934, as amended
      (the Exchange Act);
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                            
| | (b) | must not have participated in the preparation of the
      financial statements of Cardero or any current subsidiary of Cardero at
      any time during the past three years; and                                                         
| |     |                                                                                                                                                                                                                                            
| | (c) | must be able to read and understand fundamental financial
      statements, including a companys balance sheet, income statement, and
      cash flow statement.                                                                          

Each member of the Audit Committee is independent and satisfies
the requirements set forth in Section 803A of the NYSE MKT Company Guide and
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 FitchPaul Matysek

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 the NYSE
MKT.

84

---

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, 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 has 2 part-time employees. 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. 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 drilling and geological programs on
its mineral properties. However, should the Company expand its activities, it is
likely that it will choose to hire additional 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 February 27, 2013.

Name
    Number of Common Shares beneficiallyowned(1)
    Percentage ofoutstanding
      CommonShares(2)Michael Hunter(3)
    3,258,462
    2.91Hendrik Van Alphen(4)
    2,634,119
    2.37Leonard Harris(5)
    334,694
    0.30Stephan A. Fitch(6)
    270,952
    0.24Paul Matysek(7)
    546,000
    0.49Ryan Dunfield(8)
    200,000
    0.18Lawrence W. Talbot(9)
    507,877
    0.46


85

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Name
    Number of Common Shares
      beneficially owned(1)
    Percentage of outstanding
      Common Shares(2)Blaine Bailey(10)
    1,282,000
    1.15Keith Henderson(11)
    818,400
    0.74Angus Christie(12)
    618,277
    0.55Glenn Hoffman(13)
    403,500
    0.36All Directors and executive officers as a
      group(14)
    10,874,281
    9.38


|(1)  | Includes Common Shares issuable pursuant to stock options
      and common share purchase warrants that are exercisable on, or within 60
      days after, February 27, 2013.                                                                                                                                                                                                                                                                                                             
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(2)  | Percentages are based on 110,096,270 Common Shares
      outstanding as of February 27, 2013. Common shares subject to stock
      options and common share purchase warrants that are exercisable on, or
      within 60 days after, February 27, 2013 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.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3)  | Includes 1,381,000 stock options and 160,000 common share
      purchase warrants beneficially owned by Mr. Hunter. The common share
      purchase warrants are exercisable at $0.125 until May 29, 2013.                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(4)  | Includes 750,000 stock options beneficially owned by Mr.
      Van Alphen.                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(5)  | Includes 200,000 stock options beneficially owned by Mr.
      Harris.                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(6)  | Includes 200,000 stock options beneficially owned by Mr.
      Fitch.                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(7)  | Includes 200,000 stock options beneficially owned by Mr.
      Matysek.                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(8)  | Includes 200,000 stock options beneficially owned by Mr.
      Dunfield.                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(9)  | Includes 275,000 stock options beneficially owned by Mr.
      Talbot.                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(10) | Includes 857,000 stock options and 80,000 common share
      purchase warrants beneficially owned by Mr. Bailey. The common share
      purchase warrants are exercisable at $0.125 until May 29, 2013.                                                                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(11) | Includes 540,000 stock options beneficially owned by Mr.
      Henderson.                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(12) | Includes 575,000 stock options beneficially owned by Mr.
      Christie.                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(13) | Includes 300,000 stock options beneficially owned by Mr.
      Hoffman.                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(14) | Includes 5,478,000 stock options and 240,000 common share
      purchase warrants 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.

86

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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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

87

---

| | b. | the closing price of the Common Shares on the TSE on the
      day prior to the option grant.
| | -- | ---------------------------------------------------------------------------------------------

| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 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.

88

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| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | c.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | d.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | e.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | f.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | g.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | h.                                                                                                                                                                                                                                                                                                                                                                                                                                                

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

89

---

| | 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 February 27, 2013, 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)Luxor Capital
      Group, LP(2)
    10,420,744(3)
    9.46%


|(1) | Percentage is based on 110,096,270 Common Shares
      outstanding as of February 27, 2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(2) | According to Amendment No. 7 to Schedule 13G filed with
      the SEC on February 14, 2013 by Luxor Capital Group, LP and certain other
      reporting persons (Amendment No. 7), each of Luxor Capital Partners
      Offshore Master Fund, LP and Luxor Capital Partners Offshore, Ltd.
      beneficially owns 5,752,169 Common Shares, which represents 5.3% of the
      outstanding Common Shares as of December 31, 2012, each of Luxor Capital
      Group, LP, Luxor Management, LLC and Christian Leone beneficially owns
      10,420,744 Common Shares, which represents 9.7% of the outstanding Common
      Shares as of December 31, 2012, and LCG Holdings, LLC beneficially owns
      9,891,522 Common Shares, which represents 9.2% of the outstanding Common
      Shares as of December 31, 2012. For additional information, please refer
      to Amendment No. 7 on EDGAR.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(3) | This number reflects a recent increase of 2,964,559
      Common Shares purchased in a private placement that closed on December 18,
      2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Based upon Amendment No. 4 to Schedule 13G filed with the SEC
on February 14, 2011 (Amendment No. 4), Amendment No. 5 to Schedule 13G filed
with the SEC on June 10, 2011 (Amendment No. 5), Amendment No. 6 to Schedule
13G filed with the SEC on February 14, 2012 (Amendment No. 6) and Amendment
No. 7 filed with the SEC on February 14, 2013 by Luxor Capital Group, LP and
certain other reporting persons, on December 31, 2010, June 1, 2011, December
31, 2011 and December 31, 2012, respectively, the following changes in the
ownership of Common Shares by Luxor Capital Group, LP have taken place since
Amendment No. 4 was filed:

Name
      December 31, 2010(Amendment No. 4)
      June 1, 2011(Amendment
        No. 5)
      December 31, 2011(Amendment No. 6)
      December 31, 2012(Amendment No. 7)Number(1)
      %(2)
      Number(1)
      %(2)
      Number(1)
      %(2)
      Number(1)
      %(2)Luxor Capital Group, LP
      9,770,983
      16.5
      8,574,586
      10.3
      7,697,344
      9.3
      10,420,744
      9.7


|(1) | Number of Common Shares owned, based upon number reported
      in applicable filing.              
|--- | ---------------------------------------------------------------------------------------------------
|    |                                                                                                    
|(2) | Percentage of outstanding Common Shares, based upon
      percentage reported in applicable filing.

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 February 27, 2013, there were 110,096,270 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 115 registered shareholders owning Common Shares, of which 44 of
these registered shareholders, holding approximately 14,840,215
(13.48%) Common Shares, are residents of the United States, 64 of these
registered shareholders, holding approximately 93,614,814 (85.03%) Common
Shares, are residents of Canada, and 7 of these registered shareholders, holding
approximately 1,641,241 (1.49%) Common Shares, are residents of jurisdictions
other than the United States and Canada.

90

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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, 2011 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.

|1. | The Company has entered into a retainer agreement dated
      May 1, 2007 with Lawrence W. Talbot Law Corporation (LWTLC), pursuant to
      which LWTLC agrees to provide legal services to the Company. LWTLC is
      controlled by Lawrence W. Talbot, Carderos Vice President and General
      Counsel. Pursuant to the retainer agreement, the Company has agreed to pay
      LWTLC a minimum annual retainer of $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).
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | 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, 2012, 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), International Tower Hill Mines Ltd. (ITH),
      Abzu Gold Inc. (Abzu), Balmoral Resources Ltd. (Balmoral), Corvus Gold
      Inc. (Corvus) and LWTLC.                                                                                                      

91

---

|3. | Unsecured promissory notes, bearing interest at 1% per
      annum, due the earlier of 30 days after demand or the due date, if
      applicable, have been issued to the Company by several companies, each of
      which, at some point during the fiscal year ended October 31, 2012, 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 loans relate to the lease
      of office space and the provision of administrative services as outlined
      in item 2 above. With respect to Wealth and Abzu, the loans relate to the
      lease of office space and the provision of administrative services as
      outlined in item 2 above, together with working capital loans. The largest
      amounts outstanding during the fiscal year ended October 31, 2012 and the
      balances as at October 31, 2012 (the latest practicable date for which
      amounts are available) are as follows:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                                        |   | Largest     |  |   |             | 
| | -------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- |  | - | ----------- | 
| |                                                                                                                                        |   | Balance     |  |   |             | 
| |                                                                                                                                        |   | Outstanding |  |   |             | 
| |                                                                                                                                        |   | Between     |  |   |             | 
| |                                                                                                                                        |   | November 1, |  |   |             | 
| |                                                                                                                                        |   | 2011 and    |  |   | Balance at  | 
| |                                                                                                                                        |   | October 31, |  |   | October 31, | 
| |                                                                                                                                        |   | 2012        |  |   | 2012        | 
| |                                                                                                                                        |   |             |  |   |             | 
| | Unsecured promissory notes, 1% per annum, due the earlier
               of 30 days after
      demand or the due date, if applicable: |   |             |  |   |             | 
| | Wealth                                                                                                                                 | $ | 692,923     |  | $ | 692,748     | 
| | Indico                                                                                                                                 |   | 198,239     |  |   | 198,239     | 
| | Abzu                                                                                                                                   |   | 358,183     |  |   | 230,606     | 
| | Balmoral                                                                                                                               |   | 46,123      |  |   | 12,928      | 
| | Corvus                                                                                                                                 |   | 27,834      |  |   | 6,304       | 
| | ITH                                                                                                                                    |   | 29,648      |  |   | 1,141       | 
| | LWTLC                                                                                                                                  |   | 16,987      |  |   | 16,987      | 
| |                                                                                                                                        |   |             |  |   |             | 
| |                                                                                                                                        | $ | 1,369,937   |  | $ | 1,158,953   | 

|4. | On January 14, 2011, the Company entered into a loan
      agreement with Kria Resources Ltd. (Kria), a company in which the
      Company held over 10% of the issued shares, whereby the Company advanced
      Kria $8,064,000 (the Loan) and was due on January 13, 2012. The Loan
      bore interest at 10% per annum, calculated monthly, not in advance. Prior
      to repayment of the Loan, Trevali Mining Corporation, a company in which
      the Company held a greater than 10% interest, acquired all of the shares
      of Kria. The Company received repayment of the USD 8,000,000 loan plus USD
      645,260 (totaling CAD $8,783,463) in interest from Trevali on January 16,
      2012, which was the largest amount outstanding under the Loan. The loan
      was repaid as follows:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

92

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|5. | On November 29, 2011, Cardero closed a non-brokered
      private placement of 8,029,750 units. The units were sold at $0.95 per
      unit, and each unit consisted of one Common Share and one-half of a share
      purchase warrant, with one whole warrant being exercisable to purchase an
      additional Common Share at a price of $1.25 for 12 months from closing.
      Michael Hunter, President, Chief Executive Officer and Director of
      Cardero, purchased an aggregate of 205,740 units; Hendrik Van Alphen,
      Managing Director of Cardero, purchased an aggregate of 580,000 units;
      Lawrence W. Talbot, Vice President and General Counsel of Cardero,
      purchased an aggregate of 105,000 units; and Keith Henderson, Executive
      Vice President of Cardero, purchased an aggregate of 121,000 units. 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 4.3 and a
      copy of the related form of warrant is attached as Exhibit 4.4.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|6. | 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 4.5.                                                                                                                                                                                                                                              

**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, 2012 and 2011 and for the financial years ended October 31, 2012
and 2011, 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 has not yet filed an answer to the counterclaim.
      No documents have been exchanged and no discoveries have been held. A
      trial date has not been set.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

93

---

**8.B          
  Significant Changes**

At the IFRS transition date, the Company elected to make a
change in accounting policy, as follows:

|i) | The functional currency of Cardero Ghana and Cardero Iron
      USA has been deemed to be US dollars, and for Cardero and all subsidiaries
      other than Cardero Ghana and Cardero Iron USA, the functional currency is
      Canadian dollar, as at the transition date of November 1, 2010. The
      consolidated financial statements are presented in Canadian Dollar ($)
      which is the Companys presentation currency. Prior to the adoption of
      IFRS, the functional currency of the Company was CAD. The assets and
      liabilities of the Company are translated from Cardero Ghanas and Cardero
      Iron USAs functional currency, USD, to the presentation currency at the
      reporting date. The income and expenses are translated to the Companys
      presentation currency, which is CAD at the dates of the transactions.
      Foreign currency differences are recognized directly in other
      comprehensive income within the foreign currency translation
    reserve.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At the IFRS transition date, the Company recorded a $60,645
decrease to exploration and evaluation assets and a corresponding $60,645
increase to deficit. At October 31, 2011, the transition to IFRS resulted in the
Company recording an $7,210 increase to property, plant and equipment, a
$11,869,807 decrease to exploration and evaluation assets, a $11,713,033
decrease in deferred income tax liability, a $3,108,443 decrease in accumulated
other comprehensive income and a corresponding $2,958,879 increase decrease to
deficit. Impairment losses on available-for-sale-investments increased by
$3,655,882, gain on the reclassification of investments from equity investment
to resource related investments increased by $3,019,523 and other comprehensive
loss for the year increased by $3,108,442 for the year ended October 31.

Subsequent to October 31, 2012:

| | (a) | On November 29, 2012, 4,014,875 share purchase warrants
      at a price of $1.25 expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (b) | On December 19, 2012, the Company closed the first
      tranche of a non-brokered financing, issuing 7,966,794 Common Shares to
      raise gross proceeds of $3,585,057. The Company paid cash finders fees of
      $51,068 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (c) | On December 28, 2012, the Company closed the non-brokered
      private placement of flow- through common shares, issuing 6,000,800
      flow-through common shares at a price of $0.50 per share to raise gross
      proceeds of $3,000,400. All Common Shares issued will have 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 is
      exercisable to purchase one non-flow-through common share at $0.55 per
      share until December 28, 2013.                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (d) | On January 4, 2013, the Company granted 200,000 stock
      options exercisable at a price of $0.45 for a period of two
  years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (e) | On January 11, 2013, 240,000 share purchase warrants were
      exercised at $0.125 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (f) | On January 14, 2013, the Company entered into an
      agreement with the optionor of four coal licenses forming part of Carbon
      Creek to extend the exercise deadline of the option for a period of up to
      three months. Previously, the Company was required to exercise the option
      on or before January 14, 2013 by paying the option holder $5,000,000 and
      issuing 400,000 common shares. Under the new terms, Cardero has agreed to
      pay a non-refundable deposit of $1,000,000 on January 14, 2013, with the
      $4,000,000 balance and 400,000 shares due upon exercise of the option. The
      Company may extend the deadline for the exercise of the option for up to
      three months (to April 14, 2013) upon payment of an extension fee of
      $20,000 for each month of the extension. To date, the Company has made the
      initial $1,000,000 interim payment and the first and second $20,000
  payment to extend the option.

94

---

| | (g) | On February 8, 2013 the Company closed the second and
      final tranche of the non-brokered private placement announced October 31,
      2012. The Company issued 2,472,222 shares to raise gross proceeds of
      $1,112,500. In connection with this closing, 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.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

**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:

Year EndedOctober 31
      High($)
      Low($)2012
    1.56
    0.532011
    2.35
    0.752010
    1.66
    1.062009
    2.15
    0.882008
    3.59
    0.97


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:

Quarter Ended
      High($)
      Low($)January 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
    0.89October 31, 2011
    1.28
    0.75July 31, 2011
    1.77
    1.13April 30, 2011
    2.25
    1.59January 31, 2011
    2.35
    1.20


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:

95

---

Month
      High ($)
      Low ($)January 2013
    0.475
    0.40December 2012
    0.47
    0.39November 2012
    0.57
    0.455October 2012
    0.73
    0.53September 2012
    0.88
    0.70August 2012
    0.90
    0.78


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:

Year Ended October 31
      High (US$)
      Low (US$)2012
    1.56
    0.542011
    2.37
    0.742010
    1.62
    1.002009
    1.73
    0.732008
    3.65
    0.88


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:

Quarter Ended
      High (US$)
      Low (US$)January 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
    0.86October 31, 2011
    1.34
    0.74July 31, 2011
    1.86
    1.15April 30, 2011
    2.27
    1.60January 31, 2011
    2.37
    1.19


The following table discloses the monthly high and low sales
prices in U.S. dollars for the Common Shares for the most recent six months as
traded on the NYSE MKT:

Month
      High (US$)
      Low (US$)January 2013
    0.52
    0.41December 2012
    0.49
    0.39November 2012
    0.58
    0.45October 2012
    0.74
    0.54


96

---

Month
      High(US$)
      Low(US$)September 2012
    0.89
    0.71August 2012
    0.90
    0.78


**9.B          Plan
  of Distribution**

Not applicable.

**9.C          
  Markets**

The Common Shares are listed on the TSE, under the trading
symbol CDU, and on the NYSE MKT under the trading symbol CDY. 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.A****Share
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.

97

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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.

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.

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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.

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.                                                                                                                                                                                                                                                                                        

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| | (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.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------

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.

100

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

**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 elsewhere herein.

**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.

101

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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.;

102

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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,
2012, 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 may be
required to file an annual report with the IRS containing such information as
Treasury Regulations and/or other IRS guidance may require. 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.

104

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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.

105

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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.

106

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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.

107

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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.

108

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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 a trade or business). 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.

109

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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 a
domestic financial institution. 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 under
these rules, 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.

110

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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.com and 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 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, 2012. 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 to the annual consolidated financial statements included herein. The
carrying values of cash and cash equivalents, accounts receivable, and accounts
payable 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.

The Companys risk exposure and the impact on the Companys
  financial instruments are summarized below.

IFRS 7 Financial instruments: Disclosures establishes 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;
|--------- | ---------------------------------------------------------------------------------------

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

|                             |  |            |  |  |         |  |  |         |  |  |            | 
|---------------------------- |  | ---------- |  |  | ------- |  |  | ------- |  |  | ---------- | 
|October 31, 2011             |  | Level 1    |  |  | Level 2 |  |  | Level 3 |  |  | Total      | 
|                             |  |            |  |  |         |  |  |         |  |  |            | 
|Resource related investments |  | 32,006,649 |  |  | 544,455 |  |  | -       |  |  | 32,551,104 | 

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, 2012 |  |   | Oct 31, 2011 | 
| | ---------------------------- | - | ------------ |  | - | ------------ | 
| |                              |   |              |  |   |              | 
| | Bank accounts - Canada       | $ | 2,035,588    |  | $ | 5,821,354    | 
| | Bank accounts - Ghana        |   | 638          |  |   | 1,473        | 
| | Bank accounts - Peru         |   | 11,569       |  |   | 457          | 
| | Bank accounts -
      Others |   | 94,704       |  |   | 162,350      | 
| |                              | $ | 2,142,499    |  | $ | 5,985,634    | 

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 $523,612 due from
related parties at October 31, 2012, of which $453,537 were past due (October
31, 2011 - $1,239,043, November 1, 2010 - $1,361,550), the maximum exposure to
credit risk is the carrying value of the receivables as the Company does not
have any collateral for the receivables.

112

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| | (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, 2012, the cash balance of $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 2013 (see notes 1 and 17 to the annual consolidated
      financial statements included herein). At October 31, 2012, the Company
      had accounts payable and accrued liabilities of $8,794,157, which are due
      within 30 days. The long-term liability of $280,606 is related to the
      lease obligation on the Companys leased grader.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
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| |     | ii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
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| |     | iii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
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113

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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.

**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.

114

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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, 2012 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, 2012, there existed a significant
weakness in the design of disclosure controls and procedures caused by a failure
of the Company to perform an evaluation of the application of IFRS to investment
transactions. This weakness resulted in a material adjustment to the reported
amount of accumulated other comprehensive income as of October 31, 2012. Because
of the significant weakness, management has concluded that the Companys
disclosure controls and procedures were not effective as at October 31, 2012.

The Companys management proposes to address this significant
weakness in its disclosure controls and procedures by implementing a procedure
to have Carderos Chief Financial Officer, at the end of each interim and annual
reporting period, review the accumulated investment balances for reasonableness
and perform a reconciliation involving historical cost, current value and
applicable accumulated other comprehensive income to detect potential errors.

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, 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. Management has identified the following material weakness in the
Companys internal control over financial reporting.

As at October 31, 2012 the Company did not maintain effective
control over the period end financial reporting process. Specifically, the
Company did not maintain effective control over the application of IFRS to its
investment transactions. This control deficiency resulted in a material audit
adjustment to net loss, other comprehensive loss, and the related disclosures in
the Companys consolidated financial statements for the year ended October 31,
2012. Unless remediated, this control deficiency could result in a material
misstatement to net loss, other comprehensive loss, and note disclosure that
would result in a material misstatement of the Companys consolidated financial
statements that would not be prevented or detected.

Because of the material weakness, management has concluded that
the Companys internal control over financial reporting was not effective as at
October 31, 2012.

115

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PricewaterhouseCoopers LLP, an independent registered public
accounting firm has issued an attestation report on managements assessment of
the effectiveness of the Companys internal control over financial reporting as
at October 31, 2012.

Attestation report of the registered public accounting
firm

The report of PricewaterhouseCoopers LLP immediately preceding
the Companys audited consolidated balance sheets as at October 31, 2012 and
2011 and November 1, 2010 is incorporated by reference herein.

Changes in Internal Control over Financial reporting

The Chief Executive Officer and Chief Financial Officer have
concluded that there has been no change in the Companys internal control over
financial reporting during the year beginning on November 1, 2011 and ended on
October 31, 2012, that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.

**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, 2012 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, 2012.

ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND
SERVICES

For fiscal year ended October 31, 2011, Smythe Ratcliffe LLP
(Smythe) was the Companys appointed auditor, and for fiscal year ended
October 31, 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(3)
      Audit Related Fees(4)
      Tax Fees(5)
      All Other Fees(6)October 31, 2012(1)
    $206,000
    $25,500(7)
    $43,275
    NilOctober 31, 2011(2)
    $152,000
    $50,000(7)
    $8,000
    $77,000(8)


|(1) | All of the amounts billed in 2012 were billed by Smythe,
      except for $50,000 in audit fees billed by PWC.                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                            
|(2) | All of the amounts billed in 2011 were billed by
      Smythe.                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                            
|(3) | 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.
|    |                                                                                                                                                                                                                                                                                            
|(4) | 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.                                          

116

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|(5) | 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.            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                   
|(6) | The aggregate fees billed for products and services other
      than as set out under the headings Audit Fees, Audit Related Fees and
      Tax Fees.                                                                                       
|    |                                                                                                                                                                                                                                                   
|(7) | The services rendered are in connection with the review
      of the Companys quarterly financial statements and of its Form 40-F and
      AIF disclosure documents and management discussion and analysis for the
      fiscal years indicated.
|    |                                                                                                                                                                                                                                                   
|(8) | The services rendered are in connection with the
      consideration of consolidating accounting issues (2011 - $30,000), plan of
      arrangement (2011 - $17,000) and the sale of the Pampa de Pongo property
      in Peru (2011 - $30,000).  

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, 2012.

ITEM 16F.    CHANGE IN REGISTRANTS
CERTIFYING ACCOUNTANT

Effective July 4, 2012, the Company engaged PWC as its
independent registered public accounting firm, and effective the same date,
Smythe resigned as the Companys independent registered public accounting firm
at the request of the Company. The Board, on recommendation of the Audit
Committee, approved both the engagement of PWC and the resignation of Smythe.

During years ended October 31, 2011 and 2010, and the
subsequent interim period through July 4, 2012, there were no (i) disagreements
(as defined in Item 16F (a)(1)(iv) of Form 20-F and the related instructions to
Item 16F) with Smythe on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to Smythes satisfaction would have caused it to
make reference to the subject matter of the disagreement in connection with its
report, or (ii) reportable events (as defined in Item 16F (a)(1)(v) of Form
20-F).

The audit reports of Smythe on the consolidated financial
statements of the Company as of and for the years ended October 31, 2011 and
2010 did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.

During the years ended October 31, 2011 and 2010, and the
subsequent interim period through July 4, 2012, except as noted below, neither
the Company nor anyone on its behalf consulted with PWC concerning:

117

---

| | (a) | the application of accounting principles to a specified
      transaction, either completed or proposed; or the type of audit opinion
      that might be rendered on the Companys consolidated financial statements,
      and PWC concluded that neither any written report nor any oral advice was
      provided to the Company that was an important factor considered by the
      Company in reaching a decision as to the accounting, auditing or financial
      reporting issue; or
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (b) | any matter that was either the subject of a disagreement
      (as defined in Item 16F (a)(1)(iv) of Form 20-F and the related
      instructions to Item 16F) with the former auditors or a reportable event
      (as defined in Item 16F (a)(1)(v) of Form 20-F).                                                                                                                                                                                                                          

The Company consulted with PWC on the appropriate accounting
treatment of its acquisition of the remaining 54.5% of Coalhunter on June 1,
2011. It was determined that accounting for the acquisition at cost was an
appropriate treatment under IFRS. PWC provided written advice on the matter, a
copy of which is attached as Exhibit 15.5 to this annual report. Subsequent to
the conclusion of the audit of the October 31, 2011 financial statements, the
Company had initially consulted with Smythe on the topic of the accounting
treatment of the Coalhunter acquisition upon adoption of IFRS. However, Smythe
was not engaged to review the interim financial statements in which IFRS was
first adopted, or subsequent interim financial statements, and as a consequence,
the consultation with Smythe regarding this accounting treatment was not
formally concluded. The Company chose to adopt the accounting treatment as
described in the January 31, 2012 interim financial statements. The Company
requested PWC review the disclosure in this Item 16F before it was filed with
the SEC, and provided PWC the opportunity to furnish the Company with a letter
addressed to the SEC containing any new information, clarification of the
Companys expression of its view, or the respects in which it does not agree
with the statements made by the Company in this Item 16F. PWC reviewed the
disclosure in this Item 16F and confirmed it had no further comments.

The Company has provided Smythe with a copy of the disclosure
  in this Item 16F and requested Smythe furnish the Company with a letter addressed
  to the SEC stating whether it agrees with the statements the Company has made
  in this Item 16F, and if not, stating the respects in which it does not agree.
  A letter from Smythe is attached as Exhibit 15.4 to this annual report.

ITEM 16G.    CORPORATE GOVERNANCE

The Common Shares are listed on the NYSE MKT. Section 110 of
the NYSE MKT Company Guide permits NYSE MKT to consider the laws, customs and
practices of foreign issuers in relaxing certain NYSE MKT listing criteria, and
to grant exemptions from NYSE MKT listing criteria based on these
considerations. A company seeking relief under these provisions is required to
provide written certification from independent local counsel that the
non-complying practice is not prohibited by home country law. A description of
the significant ways in which the Companys governance practices differ from
those followed by domestic companies pursuant to NYSE MKT standards is as
follows:

Shareholder Meeting Quorum Requirement: The NYSE MKT
minimum quorum requirement for a shareholder meeting is one-third of the
outstanding shares of common stock. In addition, a company listed on NYSE MKT is
required to state its quorum requirement in its bylaws. The Companys quorum
requirement is set forth in its Articles. The Companys Articles provide that
the quorum for the transaction of business at a meeting of shareholders is two
persons who are, or who represent by proxy, shareholders who, in the aggregate,
hold at least 5% of the issued shares entitled to be voted at a meeting.

Proxy Delivery Requirement: NYSE MKT requires the
solicitation of proxies and delivery of proxy statements for all shareholder
meetings, and requires that these proxies be solicited pursuant to a proxy
statement that conforms to the proxy rules of the SEC. The Company is a foreign
private issuer as defined in Rule 3b-4 under the Exchange Act, and the equity
securities of the Company are accordingly exempt from the proxy rules set forth
in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company
solicits proxies in accordance with applicable rules and regulations in Canada.

118

---

Shareholder Approval Requirements: NYSE MKT requires a
listed company to obtain the approval of its shareholders for certain types of
securities issuances, including private placements that may result in the
issuance of common shares (or securities convertible into common shares) equal
to 20% or more of presently outstanding shares for less than the greater of book
or market value of the shares. In general, there is no such requirement under
British Columbia law or under the rules of the TSE unless the transaction
results in the issuance of greater than 25% of the then issued shares and the
placement is priced at a discount to market or there is a change of control. The
Company will seek a waiver from NYSE MKTs shareholder approval requirements in
circumstances where the securities issuance does not trigger such a requirement
under British Columbia law or under the rules of the TSE.

The foregoing are consistent with the laws, customs and
practices in Canada.

ITEM 16H.    MINE SAFETY DISCLOSURE

Not applicable.

PART III

**ITEM
17.**     **FINANCIAL STATEMENTS**

Not applicable.

**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 28, 2013.
- Independent Auditors Report dated January 28, 2013.
- Consolidated Statements of Financial Position at October 31, 2012, October
  31, 2011 and November 1, 2010.
- Consolidated Statements of Loss for the years ended October 31, 2012 and
  October 31, 2011.
- Consolidated Statements of Comprehensive Loss for the years ended October
  31, 2012 and October 31, 2011.
- Consolidated Statements of Shareholders Equity at October 31, 2012,
  October 31, 2011 and November 1, 2010.
- Consolidated Statements of Cash Flows for the years ended October 31, 2012
  and October 31, 2011.
- Notes to the Consolidated Financial Statements for the years ended October
  31, 2012 and October 31, 2011.

119

---



CARDERO RESOURCE CORP.(An
Exploration Stage Company)

Audited Consolidated Financial
Statements(Expressed in Canadian Dollars)

October 31, 2012 and 2011



Corporate Head Office

Suite 2300  1177 West Hastings StreetVancouver, British
ColumbiaV6E 2K3Tel: 604-408-7488

---

MANAGEMENTS 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
International Financial Reporting Standards as issued by the International
Accounting Standards Board.

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.

As required by Section 404 of the Sarbanes Oxley Act of 2002
and National Instrument 52-109, 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, 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. Management has identified the following material weakness in the
Companys internal control over financial reporting.

As at October 31, 2012 the Company did not maintain effective
control over the period end financial reporting process. Specifically, the
Company did not maintain effective control over the application of IFRS to its
investment transactions. This control deficiency resulted in a material audit
adjustment to net loss, other comprehensive loss, and the related disclosures in
the Companys consolidated financial statements for the year ended October 31,
2012. Unless remediated, this control deficiency could result in a material
misstatement to net loss, other comprehensive loss, and note disclosure that
would result in a material misstatement of the Companys consolidated financial
statements that would not be prevented or detected.

Because of the material weakness, management has concluded that
the Company's internal control over financial reporting was not effective as at
October 31, 2012.

PricewaterhouseCoopers LLP, an independent registered public
accounting firm has issued an attestation report on managements assessment of
the effectiveness of the Companys internal control over financial reporting as
at October 31, 2012.

|Michael Hunter                    | Blaine Bailey        
|----------------------------------- | -----------------------
|Michael Hunter,                     | Blaine Bailey,         
|President & Chief Executive Officer | Chief Financial Officer
|                                    |                        
|January 28, 2013                    |                        
|Vancouver, Canada                   |                        

---

January 28, 2013

**Independent Auditors
Report**

**To the Shareholders of Cardero
Resource Corp.**

We have completed an integrated audit
of Cardero Resource Corp.s and its subsidiaries (the Company) October 31,
2012 consolidated financial statements and their internal control over financial
reporting as at October 31, 2012 and an audit of their October 31, 2011
consolidated financial statements. Our opinions, based on our audits, are
presented below.

**Report on the consolidated
financial statements**We have audited the accompanying consolidated
financial statements of Cardero Resource Corp. and its subsidiaries, which
comprise the consolidated statement of financial position as at October 31,
2012, October 31, 2011 and November 1, 2010 and the consolidated statements of
loss, comprehensive loss, shareholders equity and cash flows for the years
ended October 31, 2012 and 2011, and the related notes, which comprise a summary
of significant accounting policies and other explanatory information.

**Managements responsibility for
the consolidated financial statements**Management is responsible for
the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board and for such internal control as
management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to
fraud or error.

**Auditors
responsibility**Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform an audit to obtain reasonable
assurance about whether the consolidated financial statements are free from
material misstatement. Canadian generally accepted auditing standards require
that we comply with ethical requirements.

An audit involves performing procedures
to obtain audit evidence, on a test basis, about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the
auditors judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control
relevant to the Companys preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in
the circumstances. An audit also includes evaluating the appropriateness of
accounting principles and policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements

PricewaterhouseCoopers LLPPricewaterhouseCoopers Place, 250 Howe Street, Suite
      700, Vancouver, British Columbia, Canada V6C 3S7T: +1 604 806 7000, F: +1 604 806 7806,
      www.pwc.com/caPwC refers to PricewaterhouseCoopers LLP, an Ontario
      limited liability partnership.


---



We believe that the audit evidence we
have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion on the consolidated financial statements.

**Opinion**In our
opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of Cardero Resource Corp. and its subsidiaries
as at October 31, 2012, October 31, 2011 and November 1, 2010 and their
financial performance and their cash flows for the years ended October 31, 2012
and 2011 in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board.

**Emphasis of matter**Without qualifying our opinion, we draw attention to Note 1 in the
consolidated financial statements which discloses conditions that indicate the
existence of a material uncertainty that casts substantial doubt about the
ability of Cardero Resource Corp. to continue as a going concern.

**Report on internal control over
financial reporting**

We have also audited Cardero Resource
Corp.s and its subsidiaries internal control over financial reporting as at
October 31, 2012, based on criteria established in Internal Control - Integrated
Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).

**Managements responsibility for
internal control over financial reporting**Management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in Managements Report on Internal Control Over Financial Reporting.

**Auditors
responsibility**Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects.

An audit of internal control over
financial reporting includes obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control, based
on the assessed risk, and performing such other procedures as we consider
necessary in the circumstances.

We believe that our audit provides a
reasonable basis for our audit opinion on the Companys internal control over
financial reporting.

**Definition of internal control
over financial reporting**A companys internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting
includes those policies and procedures that: (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
Companys assets that could have a material effect on the financial
statements.

2

---



**Inherent
limitations**Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions or
that the degree of compliance with the policies or procedures may
deteriorate.

**Opinion**In our
opinion, Cardero Resource Corp. did not maintain, in all material respects,
effective internal control over financial reporting as of October 31, 2012,
based on criteria established in Internal Control -Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
because a material weakness in internal control over financial reporting related
to evaluating the accounting implications of investment transactions existed as
of that date. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected on a timely basis. The
material weakness referred to above is described in the accompanying
Managements Report on Internal Control Over Financial Reporting. We considered
this material weakness in determining the nature, timing, and extent of audit
tests applied in our audit of the October 31, 2012 consolidated financial
statements and our opinion regarding the effectiveness of the Companys internal
control over financial reporting does not affect our opinion on those
consolidated financial statements.

(signed) PricewaterhouseCoopers
LLP

**Chartered
Accountants**

3

---

|CARDERO RESOURCE CORP.           
|---------------------------------
|(AN EXPLORATION STAGE COMPANY)   
|Consolidated Financial Statements
|(Expressed in Canadian Dollars)  
|October 31,
      2012           





|INDEX                                                                  | Page
|---------------------------------------------------------------------- | ----
|Managements Responsibility for Financial
      Statements             |     
|Managements Report on Internal Control
      over Financial Reporting |     
|Reports of Independent
      Registered Public Accounting Firm         |     
|Consolidated Financial Statements                                      | 1-5 
|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                            | 5   
|Notes to Consolidated Financial
      Statements                       | 6-46

---

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

|                                                 |   | October 31  |   |   | October 31  |   |   | November 1  |  
|------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                 |   | 2012        |   |   | 2011        |   |   | 2010        |  
|                                                 |   |             |   |   | (note 15)   |   |   | (note 15)   |  
|ASSETS                                           |   |             |   |   |             |   |   |             |  
|Current                                          |   |             |   |   |             |   |   |             |  
|Cash and cash equivalents                        | $ | 2,142,499   |   | $ | 5,985,634   |   | $ | 52,264,003  |  
|Accounts receivable                              |   | 5,612,772   |   |   | 1,434,077   |   |   | 267,431     |  
|Due from related parties (note
      10)         |   | 523,612     |   |   | 1,239,043   |   |   | 1,361,550   |  
|Loan receivable (note 10(e))                     |   | -           |   |   | 8,580,096   |   |   | -           |  
|Prepaid expenses                                 |   | 597,561     |   |   | 356,191     |   |   | 335,493     |  
|                                                 |   |             |   |   |             |   |   |             |  
|Total Current Assets                             |   | 8,876,444   |   |   | 17,595,041  |   |   | 54,228,477  |  
|                                                 |   |             |   |   |             |   |   |             |  
|Property, Plant and Equipment(note
      4)      |   | 1,412,763   |   |   | 918,206     |   |   | 197,737     |  
|Equity Investment(note 6)                        |   | -           |   |   | -           |   |   | 5,236,540   |  
|Investments(note 5)                              |   | 2,571,811   |   |   | 32,551,104  |   |   | 62,765,750  |  
|Exploration and Evaluation Advances              |   | 262,500     |   |   | 810,100     |   |   | -           |  
|Exploration and Evaluation Assets(notes 3 and 7) |   | 88,323,788  |   |   | 56,488,888  |   |   | 15,796,105  |  
|Deposits(note 8)                                 |   | 4,854,136   |   |   | 115,000     |   |   | -           |  
|                                                 |   |             |   |   |             |   |   |             |  
|Total Assets                                     | $ | 106,301,442 |   | $ | 108,478,339 |   | $ | 138,224,609 |  
|                                                 |   |             |   |   |             |   |   |             |  
|LIABILITIES                                      |   |             |   |   |             |   |   |             |  
|Current                                          |   |             |   |   |             |   |   |             |  
|Accounts payable and accrued liabilities         | $ | 8,794,157   |   | $ | 4,038,261   |   | $ | 832,087     |  
|Income tax payable                               |   | -           |   |   | -           |   |   | 26,847,314  |  
|                                                 |   | 8,794,157   |   |   | 4,038,261   |   |   | 27,679,401  |  
|                                                 |   |             |   |   |             |   |   |             |  
|Lease
      obligation                           |   | 280,606     |   |   | -           |   |   | -           |  
|                                                 |   |             |   |   |             |   |   |             |  
|Total Liabilities                                |   | 9,074,763   |   |   | 4,038,261   |   |   | 27,679,401  |  
|                                                 |   |             |   |   |             |   |   |             |  
|SHAREHOLDERS EQUITY                             |   |             |   |   |             |   |   |             |  
|Share Capital(notes 3 and 9)                     |   | 117,070,689 |   |   | 107,237,122 |   |   | 69,890,947  |  
|Contributed Surplus                              |   | 22,278,360  |   |   | 19,775,985  |   |   | 14,726,585  |  
|Accumulated Other Comprehensive
      Income     |   | (166,363    | ) |   | 7,788,879   |   |   | 31,140,707  |  
|Deficit                                          |   | (41,956,007 | ) |   | (30,361,908 | ) |   | (5,213,031  | )
|                                                 |   |             |   |   |             |   |   |             |  
|Total
      Shareholders Equity                 |   | 97,226,679  |   |   | 104,440,078 |   |   | 110,545,208 |  
|                                                 |   |             |   |   |             |   |   |             |  
|Total Liabilities
      and Shareholders Equity | $ | 106,301,442 |   | $ | 108,478,339 |   | $ | 138,224,609 |  

|Subsequent Events(note 17)       |  |                         
|-------------------------------- |  | ------------------------
|Going Concern(note 1)            |  |                         
|                                 |  |                         
|                                 |  |                         
|Approved on behalf of the Board: |  |                         
|                                 |  |                         
|Hendrik Van
      Alphen       |  | Michael Hunter        
|Hendrik Van Alphen, Director     |  | Michael Hunter, 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   

|                                                                                                                                       |   | 2012        |   |   | 2011        |  
|-------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                                                                                       |   |             |   |   | (note 15)   |  
|                                                                                                                                       |   |             |   |   |             |  
|Administrative Expenses                                                                                                                |   |             |   |   |             |  
|Bad debts                                                                                                                              |   | 132,245     |   |   | -           |  
|Consulting fees (notes 9 and
      10)                                                                                                 |   | 1,071,977   |   |   | 1,324,798   |  
|Corporate development                                                                                                                  |   | 368,112     |   |   | 606,239     |  
|Depreciation                                                                                                                           |   | 349,544     |   |   | 244,935     |  
|Insurance                                                                                                                              |   | 109,318     |   |   | 108,928     |  
|Investor relations (note 9)                                                                                                            |   | 429,302     |   |   | 650,779     |  
|Office costs                                                                                                                           |   | 970,157     |   |   | 736,844     |  
|Professional fees (notes 9 and
      10)                                                                                               |   | 1,806,456   |   |   | 977,197     |  
|Property evaluations                                                                                                                   |   | 603,819     |   |   | 3,610,508   |  
|Regulatory and transfer agent
      fees                                                                                               |   | 237,972     |   |   | 221,064     |  
|Salaries and benefits (notes 9 and 10)                                                                                                 |   | 5,419,163   |   |   | 4,286,210   |  
|Travel                                                                                                                                 |   | 769,827     |   |   | 225,639     |  
|                                                                                                                                       |   |             |   |   |             |  
|Loss Before Other Items and Income Taxes                                                                                               |   | (12,267,892 | ) |   | (12,993,141 | )
|                                                                                                                                       |   |             |   |   |             |  
|Other Items                                                                                                                            |   |             |   |   |             |  
|Other income                                                                                                                           |   | 40,143      |   |   | -           |  
|Foreign exchange gain (loss)                                                                                                           |   | (94,484     | ) |   | 984,660     |  
|Interest income, net of bank charges (note
      10(d))                                                                                |   | 149,434     |   |   | 1,659,273   |  
|Realized gain on
      available-for-sale investments (note 5)                                                                         |   | 9,486,396   |   |   | 14,245,612  |  
|Unrealized loss on derivative investment (note
      5)                                                                                |   | (754,917    | ) |   | (3,252,256  | )
|Unrealized gain loss on fair
      value through profit or loss investment (note 5)                                                    |   | (80,462     | ) |   | (59,500     | )
|Impairment losses on available-for-sale
      investments (note 5)                                                                     |   | (3,687,101  | ) |   | (11,335,318 | )
|Impairment losses on Due from
      related parties                                                                                    |   | (1,112,726  | ) |   | -           |  
|Write-off exploration and evaluation assets                                                                                            |   | (3,554,667  | ) |   | (12,206,614 | )
|Gain on loan settlement (note
      10(e))                                                                                             |   | 1,368,953   |   |   | -           |  
|Gain on the reclassification of
      investments from equity investments to
      resource      related investments (note
      6(a)) |   | -           |   |   | 3,019,523   |  
|Loss on equity investments (note 6)                                                                                                    |   | -           |   |   | (793,194    | )
|                                                                                                                                       |   |             |   |   |             |  
|                                                                                                                                       |   | 1,760,569   |   |   | (7,737,814  | )
|                                                                                                                                       |   |             |   |   |             |  
|Loss Before Income Taxes                                                                                                               |   | (10,507,323 | ) |   | (20,730,955 | )
|                                                                                                                                       |   |             |   |   |             |  
|Income Taxes                                                                                                                           |   |             |   |   |             |  
|Current expense                                                                                                                        |   | -           |   |   | (859,159    | )
|Deferred expense                                                                                                                       |   | (1,086,776  | ) |   | (3,558,763  | )
|                                                                                                                                       |   |             |   |   |             |  
|                                                                                                                                       |   | (1,086,776  | ) |   | (4,417,922  | )
|                                                                                                                                       |   |             |   |   |             |  
|Net Loss for Year                                                                                                                      |   | (11,594,099 | ) |   | (25,148,877 | )
|                                                                                                                                       |   |             |   |   |             |  
|Basic and Diluted Loss Per Share                                                                                                       | $ | (0.13       | ) | $ | (0.36       | )
|                                                                                                                                       |   |             |   |   |             |  
|Weighted Average Number of Shares Outstanding                                                                                          |   | 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                 

|                                                                         |   | 2012        |   |   | 2011        |  
|------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | -
|                                                                         |   |             |   |   | (note 15)   |  
|Net Loss for Year                                                        | $ | (11,594,099 | ) | $ | (25,148,877 | )
|Other comprehensive income (loss), net of deferred taxes                 |   |             |   |   |             |  
|Exchange differences on
      translation of foreign operations          |   | (59,733     | ) |   | (88,920     | )
|Other
      comprehensive income (loss) on available-for-sale securities |   | (7,895,509  | ) |   | (23,262,908 | )
|Other Comprehensive Loss for the Year, net of deferred
      taxes       |   | (7,955,242  | ) |   | (23,351,828 | )
|Comprehensive
      Loss for the Year                                    | $ | (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-for- |   |   | Total       |  
|--------------------------------------------------------------------- |  | ------------- |  | - | ----------- | - | - | ----------- | - | - | ----------- | - | - | -------------- | - | - | ----------- | -
|                                                                      |  |               |  |   |             |   |   |             |   |   | Contributed |   |   | Currency       |   |   | Sale        |  
|                                                                      |  | Shares        |  |   | Amount      |   |   | Deficit     |   |   | Surplus     |   |   | Translation    |   |   | Investments |  
|                                                                      |  |               |  |   |             |   |   |             |   |   |             |   |   |                |   |   |             |  
|Balance, November 1, 2010 (note 15)                                   |  | 58,373,302    |  | $ | 69,890,947  |   | $ | (5,213,031  | ) | $ | 14,726,585  |   | $ | -              |   | $ | 31,140,707  |  
|                                                                      |  |               |  |   |             |   |   |             |   |   |             |   |   |                |   |   |             |  
|Net loss for the year                                                 |  | -             |  |   | -           |   |   | (25,148,877 | ) |   | -           |   |   | -              |   |   | -           |  
|Other comprehensive income                                            |  |               |  |   |             |   |   |             |   |   |             |   |   |                |   |   |             |  
|Unrealized loss on
      available-for-sale investments               |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | -              |   |   | (7,220,449  | )
|Transfer to income of realized gain on sale
      investments         |  | -             |  |   | -           |   |   | -           |   |   | -           |   |   | -              |   |   | (10,035,525 | )
|Transfer to income for
      impairment losses on investments         |  |               |  |   |             |   |   |             |   |   |             |   |   |                |   |   | (6,006,934  | )
|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
      (note 3)                              |  | 23,397,002    |  |   | 35,095,503  |   |   | -           |   |   | 4,354,140   |   |   | -              |   |   | -           |  
|Share-based
      payments                                            |  | -             |  |   | -           |   |   | -           |   |   | 1,748,064   |   |   | -              |   |   | -           |  
|                                                                      |  |               |  |   |             |   |   |             |   |   |             |   |   |                |   |   |             |  
|Balance, October 31, 2011 (note 15)                                   |  | 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
      7(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     | )

See Notes to Consolidated Financial Statements

4

---

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

|                                                                                                                                            |   | 2012        |   |   | 2011        |  
|------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                                                                                            |   |             |   |   | (note 15)   |  
|Operating Activities                                                                                                                        |   |             |   |   |             |  
|Net loss for the year                                                                                                                       | $ | (11,594,099 | ) | $ | (25,148,877 | )
|Items not involving cash                                                                                                                    |   |             |   |   |             |  
|Bad debts                                                                                                                                   |   | 132,245     |   |   | -           |  
|Depreciation                                                                                                                                |   | 349,544     |   |   | 244,935     |  
|Share-based payments (note 9)                                                                                                               |   | 3,350,460   |   |   | 1,301,935   |  
|Realized gain on sale
      of available-for-sale investments (note 5)                                                                      |   | (9,486,396  | ) |   | (14,245,612 | )
|Impairment losses on available-for-sale
      investments (note 5)                                                                          |   | 3,687,101   |   |   | 11,335,318  |  
|Impairment losses on
      due from related parties (note 10 (c) )                                                                          |   | 1,112,726   |   |   | -           |  
|Unrealized gain on fair value through
      profit or loss investment (note 5)                                                              |   | 80,462      |   |   | 59,500      |  
|Write-off of
      exploration and evaluation assets                                                                                        |   | 3,554,667   |   |   | 12,206,614  |  
|Amortization of fair value of warrants
      to interest income                                                                             |   | -           |   |   | (1,287,909  | )
|Gain on loan settlement
      (note 10)                                                                                                     |   | (1,368,953  | ) |   | -           |  
|Gain on the reclassification
      of investments from equity investments to
      resource           related
      investments (note 6(a)) |   | -           |   |   | (3,019,523  | )
|Loss on equity
      investments (note 6)                                                                                                   |   | -           |   |   | 793,194     |  
|Unrealized gain on derivative
      investments (note 5)                                                                                    |   | 754,917     |   |   | 3,252,256   |  
|Deferred income taxes
      expense                                                                                                         |   | 1,086,776   |   |   | 3,558,763   |  
|Unrealized foreign exchange gain                                                                                                            |   | -           |   |   | (1,245,680  | )
|Foreign exchange loss
      on cash                                                                                                         |   | (4,607      | ) |   | 1,369,756   |  
|Changes in non-cash working capital items                                                                                                   |   |             |   |   |             |  
|Prepaid expenses                                                                                                                            |   | (241,370    | ) |   | (15,532     | )
|Accounts payable and accrued
      liabilities                                                                                              |   | 136,329     |   |   | (163,112    | )
|Income taxes payable                                                                                                                        |   | -           |   |   | (25,601,634 | )
|                                                                                                                                            |   |             |   |   |             |  
|Cash Used in Operating Activities                                                                                                           |   | (8,450,198  | ) |   | (36,605,608 | )
|                                                                                                                                            |   |             |   |   |             |  
|Investing Activities                                                                                                                        |   |             |   |   |             |  
|Acquisition of Coalhunter (note 3)                                                                                                          |   | -           |   |   | 1,806,655   |  
|Expenditures on exploration
      and evaluation assets                                                                                     |   | (28,614,484 | ) |   | (6,187,340  | )
|Increase in deposits (note 8)                                                                                                               |   | (4,739,136  | ) |   | (110,000    | )
|Proceeds from sale of
      investments                                                                                                     |   | 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                                                                                                   |   | (576,726    | ) |   | (771,028    | )
|Loan receivable                                                                                                                             |   | 4,886,633   |   |   | (8,580,096  | )
|Accounts receivable                                                                                                                         |   | (5,080,819  | ) |   | (308,776    | )
|Due from related parties                                                                                                                    |   | (397,295    | ) |   | 122,507     |  
|                                                                                                                                            |   |             |   |   |             |  
|Cash Used in Investing Activities                                                                                                           |   | (3,483,026  | ) |   | (9,500,873  | )
|                                                                                                                                            |   |             |   |   |             |  
|Financing Activities                                                                                                                        |   |             |   |   |             |  
|Proceeds from shares issued, net of issuance costs                                                                                          |   | 8,085,482   |   |   | 1,197,868   |  
|                                                                                                                                            |   |             |   |   |             |  
|Cash Provided
      by Financing Activities                                                                                                 |   | 8,085,482   |   |   | 1,197,868   |  
|                                                                                                                                            |   |             |   |   |             |  
|Effect of
      Foreign Exchange on Cash                                                                                                    |   | 4,607       |   |   | (1,369,756  | )
|                                                                                                                                            |   |             |   |   |             |  
|Decrease in Cash and Cash Equivalents                                                                                                       |   | (3,843,135  | ) |   | (46,278,369 | )
|Cash and Cash Equivalents, Beginning of the Year                                                                                            |   | 5,985,634   |   |   | 52,264,003  |  
|Cash and Cash
      Equivalents, End of the Year                                                                                            | $ | 2,142,499   |   | $ | 5,985,634   |  

Supplemental cash flow information(note 16)

See Notes to Consolidated Financial Statements

5

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|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, the NYSE MKT 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, there are events
      and conditions that raise substantial doubt on the validity of that
      assumption. During the year ended October 31, 2012, the Company had a loss
      of $11,594,099, as at October 31, 2012 has an accumulated deficit of
      $41,956,007 and has a working capital $82,287. The Company will require
      additional funding to maintain its ongoing exploration programs and
      property commitments and for administrative purposes.                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | 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
      favourable 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. The Company anticipates that
      it will require additional financing through, but not limited to, the
      issuance of additional equity in order to fund its ongoing exploration.
      There can be no assurance the Company will be successful in this
      endeavour.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

6

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

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

7

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

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

| | Computer equipment     | - 30% declining balance basis                              
| | ---------------------- | -----------------------------------------------------------
| | Computer software      | - 100% declining balance basis                             
| | Office equipment       | - 20% to 30% declining balance basis                       
| | Vehicles               | - 20% declining balance basis                              
| | Metallurgy lab         | - over 5 years on a straight-line basis                    
| | Building               | - over 10 years on a straight-line basis                   
| | Leasehold improvements | - over the term of the lease on a straight-line
      basis
| | Leased grader          | - over 5 years on a straight-line basis                    

Depreciation methods, useful lives and
residual values are reviewed at each financial year-end and adjusted if
appropriate.

Subsequent costs

The cost of replacing part of an item
of property, plant and equipment is recognized in the carrying amount of the
item if it is probable that the future economic benefit embodied within the part
will flow to the Company and its cost can be measured reliably. The carrying
amount of the replaced part is derecognized. The costs of the day-to-day
servicing of property, plant and equipment are recognized in profit or loss as
incurred.

Major maintenance and
repairs

Subsequent costs are included in the
assets carrying amount or recognized as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will
flow to the Company and the cost of the item can be measured reliably. All other
repairs and maintenance are charged to the profit or loss during the financial
period in which they are incurred.

8

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

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

9

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

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

10

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|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, 2012 and 2011

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

12

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

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

13

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|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, 2012 and 2011

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

15

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|2. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | (o)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|3. | ACQUISITION OF COALHUNTER                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | On June 1, 2011, the Company completed the acquisition of
      Coalhunter through a Plan of Arrangement (the Acquisition) whereby one
      Coalhunter common share was exchanged for 0.8 of a common share of the
      Company. The acquisition resulted in the Company issuing 23,397,002 common
      shares on the effective date, with a further 5,885,543 common shares
      reserved for issuance for the exercise of options held by former
      Coalhunter optionees, the exercise of Coalhunter warrants and pursuant to
      Coalhunter property acquisition agreements. On completion of the
      transaction, Coalhunter became a wholly-owned subsidiary of the Company
      and was renamed Cardero Coal. The Company accounted for the Acquisition
      using the asset acquisition method as Coalhunter did not represent a
      business.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The fair value of the common shares of the Company issued
      in connection with the Acquisition has been determined at $1.50 per share.
      The fair values of the Companys share purchase options and warrants
      issued as replacement options and warrants granted were $2,416,470 and
      $4,354,140. The Company options vest on December 1, 2011 (25%), June 1,
      2012 (25%), and December 1, 2012 (50%). The fair values were calculated
      using the Black-Scholes pricing model. The fair value of $2,416,470 will
      be allocated to salaries and benefits over the vesting term. The
      assumptions used in the calculation are as
follows:                                                                                                                                                                                        

| |                       | Options | Warrants
| | --------------------- | ------- | --------
| | Expected life (years) | 2.0     | 2.0     
| | Interest rate         | 1.45%   | 1.45%   
| | Volatility (average)  | 49.89%  | 52.61%  
| | Dividend yield        | 0.00%   | 0.00%   

16

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|3. | ACQUISITION OF COALHUNTER (Continued)                          
|-- | ---------------------------------------------------------------
|   |                                                                
|   | The purchase consideration is comprised of the
      following:

| | Total purchase price:                                                  |   |            | 
| | ---------------------------------------------------------------------- | - | ---------- | 
| | Initial investments in Cardero Coal to
      acquire a 45.5% interest  | $ | 7,205,311  | 
| | Issuance of 23,397,002 Cardero common shares for 54.5%
      interest  |   | 35,095,503 | 
| | Fair value of 3,856,400 Cardero warrants as
      replacement warrants |   | 4,354,140  | 
| | Transaction costs                                                      |   | 922,393    | 
| |                                                                        | $ | 47,577,347 | 

The fair value of the Cardero Coal
assets acquired and liabilities assumed as at the acquisition date were as
follows:

| | Purchase price allocation:                 |   |            |  
| | ------------------------------------------ | - | ---------- | -
| | Cash                                       | $ | 2,626,895  |  
| | Accounts receivable                        |   | 87,990     |  
| | Due from Cardero                           |   | 644,370    |  
| | Prepaid expenses                           |   | 5,166      |  
| | Property, plant and equipment              |   | 187,166    |  
| | Exploration and evaluation advances        |   | 166,788    |  
| | Reclamation deposit                        |   | 5,000      |  
| | Exploration and evaluation assets (note 7) |   | 44,320,558 |  
| | Accounts payable and accrued liabilities   |   | (466,586   | )
| |                                            | $ | 47,577,347 |  

17

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|4. | PROPERTY, PLANT AND
EQUIPMENT
|-- | -----------------------------

|                                 |   | Computer  |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|-------------------------------- | - | --------- |  | - | --------- |  | - | -------- |  | - | ---------- |  | - | -------- |  | - | ---------------- |  | - | ------------- |  | - | --------- | 
|                                 |   | Equipment |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|                                 |   | and       |  |   | Office    |  |   |          |  |   | Metallurgy |  |   |          |  |   | Leasehold        |  |   | Mining        |  |   |           | 
|                                 |   | Software  |  |   | Equipment |  |   | Vehicles |  |   | Lab        |  |   | Building |  |   | **Improvements** |  |   | **Equipment** |  |   | Total     | 
|                                 |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|Cost                             |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|Balance, November 1, 2010        | $ | 171,624   |  | $ | 99,853    |  | $ | -        |  | $ | -          |  | $ | -        |  | $ | 210,530          |  | $ | -             |  | $ | 482,007   | 
|Additions                        |   | 207,174   |  |   | 109,084   |  |   | 20,874   |  |   | 508,651    |  |   | -        |  |   | 134,538          |  |   | -             |  |   | 980,321   | 
|Currency translation adjustments |   | -         |  |   | -         |  |   | -        |  |   | 8,226      |  |   | -        |  |   | -                |  |   | -             |  |   | 8,226     | 
|                                 |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|Balance, October 31, 2011        |   | 378,798   |  |   | 208,937   |  |   | 20,874   |  |   | 516,877    |  |   | -        |  |   | 345,068          |  |   | -             |  |   | 1,470,554 | 
|Additions                        |   | 35,180    |  |   | 98,659    |  |   | 134,563  |  |   | 28,709     |  |   | 231,337  |  |   | 33,116           |  |   | 294,912       |  |   | 856,476   | 
|Currency translation adjustments |   | -         |  |   | -         |  |   | -        |  |   | 681        |  |   | -        |  |   | -                |  |   | -             |  |   | 681       | 
|                                 |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|Balance,
      October 31, 2012  | $ | 413,978   |  | $ | 307,596   |  | $ | 155,437  |  | $ | 546,267    |  | $ | 231,337  |  | $ | 378,184          |  | $ | 294,912       |  | $ | 2,327,711 | 
|                                 |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|Accumulated depreciation         |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|Balance, November 1, 2010        | $ | 122,128   |  | $ | 48,402    |  | $ | -        |  | $ | -          |  | $ | -        |  | $ | 113,740          |  | $ | -             |  | $ | 284,270   | 
|Depreciation for the year        |   | 87,351    |  |   | 20,428    |  |   | 1,740    |  |   | 102,359    |  |   | -        |  |   | 55,184           |  |   | -             |  |   | 267,062   | 
|Currency translation adjustments |   | -         |  |   | -         |  |   | -        |  |   | 1,016      |  |   | -        |  |   | -                |  |   | -             |  |   | 1,016     | 
|                                 |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|Balance, October 31, 2011        |   | 209,479   |  |   | 68,830    |  |   | 1,740    |  |   | 103,375    |  |   | -        |  |   | 168,924          |  |   | -             |  |   | 552,348   | 
|Depreciation for the year        |   | 113,949   |  |   | 35,323    |  |   | 12,872   |  |   | 106,689    |  |   | 17,229   |  |   | 62,628           |  |   | 8,142         |  |   | 356,832   | 
|Currency translation adjustments |   | -         |  |   | 642       |  |   | 1,774    |  |   | 1,403      |  |   | 1,949    |  |   | -                |  |   | -             |  |   | 5,768     | 
|                                 |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|Balance, October 31, 2012        | $ | 323,428   |  | $ | 104,795   |  | $ | 16,386   |  | $ | 211,467    |  | $ | 19,178   |  | $ | 231,552          |  | $ | 8,142         |  | $ | 914,948   | 
|                                 |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|Carrying amounts                 |   |           |  |   |           |  |   |          |  |   |            |  |   |          |  |   |                  |  |   |               |  |   |           | 
|At November 1, 2010              | $ | 49,496    |  | $ | 51,451    |  | $ | -        |  | $ | -          |  | $ | -        |  | $ | 96,790           |  | $ | -             |  | $ | 197,737   | 
|At October 31, 2011              | $ | 169,319   |  | $ | 140,107   |  | $ | 19,134   |  | $ | 413,502    |  | $ | -        |  | $ | 176,144          |  | $ | -             |  | $ | 918,206   | 
|At October 31, 2012              | $ | 90,550    |  | $ | 202,801   |  | $ | 139,051  |  | $ | 334,800    |  | $ | 212,159  |  | $ | 146,632          |  | $ | 286,770       |  | $ | 1,412,763 | 

18

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|5. | INVESTMENTS
|-- | -----------

| |                                              |  | Shares    |  |   | Warrants   |  |  |           | 
| | -------------------------------------------- |  | --------- |  | - | ---------- |  |  | --------- | 
| | October 31, 2012                             |  | Number    |  |   | Fair Value |  |  | Number    | 
| |                                              |  |           |  |   |            |  |  |           | 
| | Trevali Mining Corporation
      (Trevali) |  | -         |  | $ | -          |  |  | 2,074,761 | 
| | Wealth Minerals Ltd. (Wealth)              |  | 5,022,806 |  |   | 577,623    |  |  | -         | 
| | Dorato Resources Inc.
      (Dorato)       |  | 2,536,000 |  |   | 202,880    |  |  | -         | 
| | Indico Resources Ltd. (Indico)             |  | 50,000    |  |   | 11,000     |  |  | -         | 
| | Balmoral Resources Ltd.
      (Balmoral)   |  | 240,000   |  |   | 223,200    |  |  | -         | 
| | Abzu Gold Inc. (Abzu Gold)                 |  | 9,234,007 |  |   | 923,401    |  |  | -         | 
| | Artha Resources Corporation
      (Artha)  |  | 2,150,000 |  |   | 96,750     |  |  | -         | 
| | Ethos Capital Corp.(Ethos)                 |  | 150,000   |  |   | 42,000     |  |  | -         | 
| |                                              |  |           |  | $ | 2,076,854  |  |  |           | 

| |                                                   |  | Shares     |  |   | Warrants   |  |  |           | 
| | ------------------------------------------------- |  | ---------- |  | - | ---------- |  |  | --------- | 
| | October 31, 2011                                  |  | Number     |  |   | Fair Value |  |  | Number    | 
| |                                                   |  | Note 15    |  |   | Note 15    |  |  |           | 
| | International Tower Hill
      Mines Ltd. (ITH) |  | 3,053,933  |  | $ | 15,330,744 |  |  | -         | 
| | Trevali                                           |  | 11,159,432 |  |   | 10,043,489 |  |  | 4,533,572 | 
| | Wealth                                            |  | 5,022,806  |  |   | 1,029,675  |  |  | -         | 
| | Dorato                                            |  | 2,536,000  |  |   | 304,320    |  |  | -         | 
| | Indico                                            |  | 50,000     |  |   | 11,000     |  |  | -         | 
| | Balmoral                                          |  | 240,000    |  |   | 235,200    |  |  | -         | 
| | Corvus Gold Inc. (Corvus)                       |  | 1,655,711  |  |   | 1,043,098  |  |  | -         | 
| | Abzu Gold                                         |  | 8,934,007  |  |   | 3,841,623  |  |  | 3,782,000 | 
| | Ethos                                             |  | 250,000    |  |   | 167,500    |  |  | -         | 
| |                                                   |  |            |  | $ | 32,006,649 |  |  |           | 

19

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|5. | INVESTMENTS
(Continued)
|-- | -----------------------

| |                              |  | Shares     |  |   | Warrants   |  |  |            | 
| | ---------------------------- |  | ---------- |  | - | ---------- |  |  | ---------- | 
| | November 1,
      2010       |  | Number     |  |   | Fair Value |  |  | Number     | 
| |                              |  | Note 15    |  |   | Note 15    |  |  |            | 
| | ITH                          |  | 4,591,223  |  | $ | 34,847,383 |  |  | -          | 
| | Trevali                      |  | 7,032,432  |  |   | 9,986,053  |  |  | 2,855,866  | 
| | Wealth                       |  | 5,022,806  |  |   | 3,164,368  |  |  | -          | 
| | Dorato                       |  | 2,416,000  |  |   | 3,020,000  |  |  | -          | 
| | Indico                       |  | 50,000     |  |   | 31,000     |  |  | -          | 
| | Kria Resources Ltd. (Kria) |  | 15,000,000 |  |   | 3,150,000  |  |  | 15,000,000 | 
| | Corvus                       |  | 880,711    |  |   | 871,904    |  |  | -          | 
| | Totem Minerals Inc.          |  | 3,782,000  |  |   | 3,971,100  |  |  | -          | 
| | Ethos                        |  | 100,000    |  |   | 80,000     |  |  | -          | 
| |                              |  |            |  | $ | 59,121,808 |  |  |            | 

All the resource related companies are
considered to be related parties, with the exception of Trevali, 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, 2012,
the Company acquired additional investments for a total cost of $262,113 (2011 -
$3,840,623). The Company sold investments for gross proceeds of $31,300,914
(2011 - $12,250,273) at a cost of $21,814,518 (2011 - $3,416,869) for net gains
on sale of $9,486,396 (2011 - $14,245,612). Impairment losses on investments
amounted to $3,687,101 (2011 - $11,335,318).

| |           |  |                   |  |   | Oct 31, 2012 |  |  | Oct 31, 2011  |  |   | Nov 1, 2010  | 
| | --------- |  | ----------------- |  | - | ------------ |  |  | ------------- |  | - | ------------ | 
| |           |  |                   |  |   | Exercise     |  |  | **Number of** |  |   | **Exercise** | 
| | Warrants  |  | Expiry Date       |  |   | Price        |  |  | Warrants      |  |   | Price        | 
| |           |  |                   |  |   |              |  |  |               |  |   |              | 
| | Trevali   |  | May 11, 2011      |  | $ | 1.30         |  |  | -             |  | $ | 1.30         | 
| |           |  | May 29, 2011      |  | $ | 1.20         |  |  | -             |  | $ | 1.20         | 
| |           |  | October 9, 2011   |  | $ | 1.00         |  |  | -             |  | $ | 1.00         | 
| |           |  | September 1, 2012 |  | $ | 1.50         |  |  | -             |  | $ | 1.50         | 
| |           |  |                   |  |   |              |  |  |               |  |   |              | 
| |           |  | July 29, 2012     |  | $ | 1.00         |  |  | -             |  | $ | 1.00         | 
| |           |  | January 14, 2012  |  | $ | 1.25         |  |  | -             |  | $ | 1.25         | 
| |           |  |                   |  |   |              |  |  |               |  |   |              | 
| |           |  | January 16, 2014  |  | $ | 1.10         |  |  | 2,074,761     |  | $ | 1.10         | 
| |           |  |                   |  |   |              |  |  |               |  |   |              | 
| |           |  |                   |  |   |              |  |  | 2,074,761     |  |   |              | 
| |           |  |                   |  |   |              |  |  |               |  |   |              | 
| | Kria      |  |                   |  |   |              |  |  |               |  |   |              | 
| |           |  |                   |  |   |              |  |  |               |  |   |              | 
| | Abzu Gold |  | December 21, 2011 |  | $ | 0.75         |  |  | -             |  | $ | 0.75         | 

20

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|5. | INVESTMENTS (Continued)                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                           
|   | During the year ended October 31, 2012, the Company
      recorded an unrealized loss on the fair value adjustment of derivatives of
      $754,917 (2011  unrealized gain of $2,936,073) and received additional
      share purchase warrants at a value of $705,419 (2011 -
$718,580).
|   |                                                                                                                                                                                                                                                                                           
|6. | EQUITY INVESTMENTS                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                           
|   | (a)                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   | (b)                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                           

21

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|7. | EXPLORATION AND EVALUATION ASSETS                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                      
|   | The Companys capitalized acquisition and exploration
      expenditures on its exploration and evaluation assets are as
    follows:

|                                     |   | Mexico          |   |   | Argentina       |   |   | Peru            |   |   | U.S.A.          |   |   | Ghana           |   |   | Canada          |  |   |             |  
|------------------------------------ | - | --------------- | - | - | --------------- | - | - | --------------- | - | - | --------------- | - | - | --------------- | - | - | --------------- |  | - | ----------- | -
|                                     |   | **(note 7(a))** |   |   | **(note 7(b))** |   |   | **(note 7(c))** |   |   | **(note 7(d))** |   |   | **(note 7(e))** |   |   | **(note 7(f))** |  |   | Total       |  
|                                     |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Balance, November 1, 2010            | $ | 261,127         |   | $ | 2,471,635       |   | $ | 10,254,095      |   | $ | 2,588,332       |   | $ | 220,916         |   | $ | -               |  | $ | 15,796,105  |  
|                                     |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Acquisition costs:                   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Acquisition costs  shares (notes 3) |   | -               |   |   | -               |   |   | -               |   |   | -               |   |   | -               |   |   | 44,320,558      |  |   | 44,320,558  |  
|Acquisition costs  cash             |   | 3,373           |   |   | 8,479           |   |   | 877,561         |   |   | 50,075          |   |   | -               |   |   | 5,800           |  |   | 945,288     |  
|Total acquisition costs              |   | 3,373           |   |   | 8,479           |   |   | 877,561         |   |   | 50,075          |   |   | -               |   |   | 44,326,358      |  |   | 45,265,846  |  
|                                     |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Deferred exploration costs:          |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Camp                                 |   | 17,504          |   |   | 65,396          |   |   | 653,215         |   |   | 218,207         |   |   | -               |   |   | 3,155,433       |  |   | 4,109,755   |  
|Drilling and analysis                |   | -               |   |   | 94,927          |   |   | 114,397         |   |   | 578,031         |   |   | -               |   |   | 1,823,913       |  |   | 2,611,268   |  
|Personnel and geology                |   | -               |   |   | 61,210          |   |   | 29,700          |   |   | 268,835         |   |   | -               |   |   | 946,296         |  |   | 1,306,041   |  
|Total exploration costs              |   | 17,504          |   |   | 221,533         |   |   | 797,312         |   |   | 1,065,073       |   |   | -               |   |   | 5,925,642       |  |   | 8,027,064   |  
|Total expenditures for the year      |   | 20,877          |   |   | 230,012         |   |   | 1,674,873       |   |   | 1,115,148       |   |   | -               |   |   | 50,252,000      |  |   | 53,292,910  |  
|                                     |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Costs recovered  Exploration        |   | (222,000        | ) |   | -               |   |   | -               |   |   | (75,383         | ) |   | -               |   |   | -               |  |   | (297,383    | )
|                                     |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Write-offs  Acquisition costs       |   | (6,730          | ) |   | (50,000         | ) |   | (4,383,054      | ) |   | -               |   |   | (50,000         | ) |   | -               |  |   | (4,489,784  | )
|Write-offs  Exploration costs       |   | -               |   |   | -               |   |   | (7,545,914      | ) |   | -               |   |   | (170,916        | ) |   | -               |  |   | (7,716,830  | )
|Total write-offs                     |   | (6,730          | ) |   | (50,000         | ) |   | (11,928,968     | ) |   | -               |   |   | (220,916        | ) |   | -               |  |   | (12,206,614 | )
|Currency translation adjustments     |   | -               |   |   | -               |   |   | -               |   |   | (96,130         | ) |   | -               |   |   | -               |  |   | (96,130     | )
|                                     |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Balance, October 31, 2011            | $ | 53,274          |   | $ | 2,651,647       |   | $ | -               |   | $ | 3,531,967       |   | $ | -               |   | $ | 50,252,000      |  | $ | 56,488,888  |  
|                                     |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Acquisition costs:                   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Acquisition costs  shares           |   | -               |   |   | -               |   |   | -               |   |   | -               |   |   | 900,000         |   |   | -               |  |   | 900,000     |  
|Acquisition costs  cash             |   | 1,545           |   |   | 28,057          |   |   | -               |   |   | 59,872          |   |   | 5,352,039       |   |   | 5,000,000       |  |   | 10,441,513  |  
|Total acquisition costs              |   | 1,545           |   |   | 28,057          |   |   | -               |   |   | 59,872          |   |   | 6,252,039       |   |   | 5,000,000       |  |   | 11,341,513  |  
|                                     |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Deferred exploration costs:          |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Camp                                 |   | 33,393          |   |   | -               |   |   | -               |   |   | 18,744          |   |   | 1,140,263       |   |   | 9,777,358       |  |   | 10,969,758  |  
|Drilling and analysis                |   | 357,612         |   |   | 1,308           |   |   | -               |   |   | 44,005          |   |   | 3,224,330       |   |   | 5,069,968       |  |   | 8,697,223   |  
|Personnel and geology                |   | 61,369          |   |   | -               |   |   | -               |   |   | 108,200         |   |   | 1,264,005       |   |   | 3,017,609       |  |   | 4,451,183   |  
|Total exploration costs              |   | 452,374         |   |   | 1,308           |   |   | -               |   |   | 170,949         |   |   | 5,628,598       |   |   | 17,864,935      |  |   | 24,118,164  |  
|Total expenditures for the period    |   | 453,919         |   |   | 29,365          |   |   | -               |   |   | 230,821         |   |   | 11,880,637      |   |   | 22,864,935      |  |   | 35,459,677  |  
|                                     |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |   |   |                 |  |   |             |  
|Costs 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      |  | $ | 88,323,788  |  

22

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|7. | EXPLORATION AND EVALUATION ASSETS
    (Continued)
|-- | -------------------------------------------------
|   |                                                  
|   | (a)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   | (b)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   | (c)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   | (d)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  

23

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|7. | EXPLORATION AND EVALUATION ASSETS
    (Continued)
|-- | -------------------------------------------------

| | **(d)** | **United States of America
      (Continued)**
| | ------- | ----------------------------------------------
| |         |                                               
| |         | ii.                                           
| |         |                                               
| |         |                                               

A payment of USD 50,000 (paid) to the
optionor is required on or before August 15, 2009 (and each and every August 28
thereafter) to be used by the optionor to make the annual USD 50,000 advance
royalty payment due to the underlying landowners. The Company can earn an
additional 15% interest of the optionor (85% overall) by delivering a
feasibility study (no time limit for delivery). Upon the Company having earned a
70% or 85% interest, the optionor can elect to convert its interest to a 10% net
profits interest (if the Company elects not to earn the additional 15% interest)
or a 5% net profits interest (if the Company elects to earn the full 85%
interest). If the optionor does not so elect, upon the Company having earned its
70% or 85% interest, as applicable, the Company and the optionor will enter into
a joint venture, with each party being responsible for its pro rata share of all
joint venture expenditures. If a party to the joint venture is diluted to a 10%
or lesser interest, such interest will be converted to a 2.5% net profits
interest.

| | (e) | Ghana                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | On December 8, 2011, three separate prospecting licenses
      covering the Sheini Iron Ore deposit were granted and Cardero Ghana and a
      private Ghanaian company have entered into three separate joint ventures
      (one for each prospecting license), each dated December 12, 2011and
      amended on November 2, 2012 (which replace all previous agreements between
      the parties, including the November 22, 2010 agreement), to explore and,
      if warranted, develop the lands subject to the prospecting licenses.
      Ghanaian government approval to the three joint venture agreements was
      obtained on April 10, 2012. All expenditures incurred prior to December 8,
      2011 have been included in Property Evaluations in the Statement of Loss.
      All expenditures incurred after December 8, 2011 were capitalized and
      included in exploration and evaluation assets.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Under the three joint ventures, Cardero Ghana will fund
      all expenditures under the particular joint venture and make the following
      payments to a private Ghanaian company:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | For the Sheini Hills North prospecting license:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

24

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|7. | EXPLORATION AND EVALUATION ASSETS
    (Continued)
|-- | -------------------------------------------------
|   |                                                  
|   | (e)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  

25

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|7. | EXPLORATION AND EVALUATION ASSETS
    (Continued)
|-- | -------------------------------------------------
|   |                                                  
|   | (f)                                              
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  
|   |                                                  

26

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|7. | EXPLORATION AND EVALUATION ASSETS
    (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (f)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (g)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | (h)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|8. | 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 $215,000 paid in the event
      that the Company incurs future reclamation expenditures on Carbon Creek
      project, a $4,500,000 Commitment Deposit and $139,136 for other security
      deposits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

27

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|9. | SHARE CAPITAL
|-- | -------------
|   |              
|   | (a)          
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              

During the year ended October 31,
2011:

| | i.   | The Company issued an aggregate 840,000 common shares on
      exercise of 840,000 options for gross proceeds of $1,026,150.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ii.  | The Company issued an aggregate of 443,800 common shares
      on exercise of 443,800 agents warrants for gross proceeds of $
      171,718.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | iii. | On June 1, 2011, the Company completed the acquisition of
      Cardero Coal through a Plan of Arrangement (the Acquisition) whereby one
      Cardero Coal common share was exchanged for 0.8 of a common share of the
      Company. The acquisition resulted in the Company issuing 23,397,002 common
      shares at $35,095,503 on the effective date, with a further 5,885,543
      common shares reserved for issuance for the exercise of options held by
      former Cardero Coal optionees, the exercise of Cardero Coal warrants and
      pursuant to Cardero Coal property acquisition agreements. On completion of
      the transaction, Cardero Coal became a wholly-owned subsidiary of the
      Company.

| | (b) | 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:

| |                                             |  | 2012       |   |   | 2011     |  
| | ------------------------------------------- |  | ---------- | - | - | -------- | -
| |                                             |  |            |   |   | Weighted |  
| |                                             |  |            |   |   | Average  |  
| |                                             |  | Number of  |   |   | Exercise |  
| |                                             |  | Warrants   |   |   | Price    |  
| |                                             |  |            |   |   |          |  
| | Warrants outstanding, beginning of the year |  | 3,412,600  |   | $ | 0.39     |  
| | Issued                                      |  | 4,014,875  |   | $ | 1.25     |  
| | Exercised                                   |  | (1,332,600 | ) | $ | (0.34    | )
| |                                             |  |            |   |   |          |  
| | Warrants outstanding, end of the year       |  | 6,094,875  |   | $ | 0.96     |  

28

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|9. | SHARE CAPITAL (Continued)
|-- | -------------------------
|   |                          
|   | (b)                      
|   |                          
|   |                          
|   |                          
|   |                          

| |                    |   |          |  |  | 2012      |  |   | 2011     |  |  |           | 
| | ------------------ | - | -------- |  |  | --------- |  | - | -------- |  |  | --------- | 
| |                    |   | Exercise |  |  | Number of |  |   | Exercise |  |  | Number of | 
| | Expiry Date        |   | Price    |  |  | Warrants  |  |   | Price    |  |  | Warrants  | 
| |                    |   |          |  |  |           |  |   |          |  |  |           | 
| | December 17, 2011  | $ | -        |  |  | -         |  | $ | 0.63     |  |  | 428,400   | 
| | March 1, 2012      | $ | -        |  |  | -         |  | $ | 0.06     |  |  | 240,000   | 
| | March 29, 2012     | $ | -        |  |  | -         |  | $ | 0.16     |  |  | 5,600     | 
| | April 6, 2012      | $ | -        |  |  | -         |  | $ | 0.16     |  |  | 12,600    | 
| | May 20, 2012       | $ | -        |  |  | -         |  | $ | 0.06     |  |  | 120,000   | 
| | June 14, 2012      | $ | -        |  |  | -         |  | $ | 0.38     |  |  | 336,000   | 
| | June 15, 2012      | $ | -        |  |  | -         |  | $ | 0.06     |  |  | 120,000   | 
| | September 22, 2012 | $ | -        |  |  | -         |  | $ | 0.44     |  |  | 70,000    | 
| | November 29, 2012  | $ | 1.25     |  |  | 4,014,875 |  | $ | -        |  |  | -         | 
| | January 12, 2013   | $ | 0.13     |  |  | 240,000   |  | $ | 0.13     |  |  | 240,000   | 
| | May 29, 2013       | $ | 0.13     |  |  | 240,000   |  | $ | 0.13     |  |  | 240,000   | 
| | June 1, 2013       | $ | 0.50     |  |  | 1,600,000 |  | $ | 0.50     |  |  | 1,600,000 | 
| |                    |   |          |  |  | 6,094,875 |  |   |          |  |  | 3,412,600 | 

| | (c) | Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The Company has a stock option plan whereby the Company
      may grant options to directors, officers, employees and consultants to
      purchase common shares, provided that the aggregate number of shares
      subject to such options may not exceed 10% of the common shares
      outstanding at the time of any grant (not including agent or broker
      options). The exercise price of each option is required to be set at the
      higher of the closing price of the Companys common shares on the trading
      day prior to the date of grant and the five-day volume-weighted average
      trading price for the five trading days prior to the date of grant
      (without any discounts). The option term and vesting period is determined
      by the Board of Directors within regulatory guidelines (the maximum term
      is ten years). All options are recorded at fair value when granted and are
      vested at the date for grant. A summary of the status of the stock option
      plan as of October 31, 2012 and 2011 and changes during the years ended on
      those dates is presented below:

29

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|9. | SHARE CAPITAL (Continued)
|-- | -------------------------
|   |                          
|   | **(c)**                  

| |                                            |  | 2012       |   |   | 2011     | 
| | ------------------------------------------ |  | ---------- | - | - | -------- | 
| |                                            |  |            |   |   | Weighted | 
| |                                            |  |            |   |   | Average  | 
| |                                            |  | Number of  |   |   | Exercise | 
| |                                            |  | Options    |   |   | Price    | 
| |                                            |  |            |   |   |          | 
| | Options outstanding, beginning of the year |  | 6,599,143  |   | $ | 1.04     | 
| | Granted pursuant to Acquisition (note 3)   |  | -          |   | $ | -        | 
| | Granted                                    |  | 6,537,000  |   | $ | 1.05     | 
| | Expired                                    |  | (3,570,000 | ) | $ | 1.21     | 
| | Exercised                                  |  | -          |   | $ | -        | 
| |                                            |  |            |   |   |          | 
| | Options outstanding, end of the year       |  | 9,566,143  |   | $ | 0.98     | 

The weighted average remaining
contractual life of options outstanding at October 31, 2012 was 1.19 year (2011
 1.02 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:

| |                    |   | 2012     |  |  | 2011      | 
| | ------------------ | - | -------- |  |  | --------- | 
| |                    |   |          |  |  |           | 
| |                    |   | Exercise |  |  | Number of | 
| | Expiry Date        |   | Price    |  |  | Options   | 
| |                    |   |          |  |  |           | 
| | December 1, 2011   | $ | -        |  |  | -         | 
| | February 2, 2012   | $ | -        |  |  | -         | 
| | July 29, 2012      | $ | -        |  |  | -         | 
| | August 11, 2012    | $ | -        |  |  | -         | 
| | September 8, 2012  | $ | -        |  |  | -         | 
| | January 28, 2013   | $ | 1.83     |  |  | 1,000,000 | 
| | June 1, 2013       | $ | 0.06     |  |  | 280,000   | 
| | June 1, 2013       | $ | 0.16     |  |  | 100,000   | 
| | June 1, 2013       | $ | 0.31     |  |  | 320,000   | 
| | June 1, 2013       | $ | 0.38     |  |  | 980,000   | 
| | June 1, 2013       | $ | 0.44     |  |  | 349,143   | 
| | November 9, 2013   | $ | 1.10     |  |  | 1,400,000 | 
| | January 26, 2014   | $ | 1.51     |  |  | 1,500,000 | 
| | March 23, 2014     | $ | 1.16     |  |  | 537,000   | 
| | September 27, 2014 | $ | 0.78     |  |  | 3,100,000 | 
| |                    |   |          |  |  |           | 
| |                    |   |          |  |  | 9,566,143 | 

30

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|9. | SHARE CAPITAL (Continued)
|-- | -------------------------
|   |                          
|   | (c)                      
|   |                          
|   |                          

| |                       | 2012   | 2011  
| | --------------------- | ------ | ------
| |                       |        |       
| | Expected life (years) | 2.0    | 2.0   
| | Interest rate         | 1.05%  | 1.35% 
| | Volatility            | 59.34% | 61.21%
| | Dividend yield        | 0.00%  | 0.00% 

Share-based payment charges for the
year ended October 31, 2012 totalled $3,350,460 (2011 - $1,301,935), allocated
as follows:

| |                             |   | 2012      |  |   | 2011      | 
| | --------------------------- | - | --------- |  | - | --------- | 
| |                             |   |           |  |   |           | 
| | Consulting fees             | $ | 106,937   |  | $ | 15,135    | 
| | Investor relations          |   | 204,222   |  |   | 294,066   | 
| | Professional fees           |   | 179,305   |  |   | -         | 
| | Salaries and
      benefits |   | 2,859,996 |  |   | 992,734   | 
| |                             |   |           |  |   |           | 
| |                             | $ | 3,350,460 |  | $ | 1,301,935 | 

|    | The weighted average fair value
      of options granted during the year was $0.32 (October 31, 2011 -
      $0.60).
|--- | --------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                     
|10. | RELATED PARTY TRANSACTIONS                                                                                          
|    |                                                                                                                     
|    | (a)                                                                                                                 
|    |                                                                                                                     
|    |                                                                                                                     
|    |                                                                                                                     
|    |                                                                                                                     
|    |                                                                                                                     
|    |                                                                                                                     

31

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|10. | RELATED PARTY TRANSACTIONS (Continued)
|--- | --------------------------------------
|    |                                       
|    | (b)                                   
|    |                                       
|    |                                       

| |                   |   | 2012    |  |   | 2011    | 
| | ----------------- | - | ------- |  | - | ------- | 
| |                   |   |         |  |   |         | 
| | Consulting fees   | $ | 255,000 |  | $ | 115,000 | 
| | Professional fees | $ | 87,500  |  | $ | 82,500  | 

| |     | Professional fees include amounts paid to a law firm of
      which an officer is a shareholder.
| | --- | ------------------------------------------------------------------------------------------------
| |     |                                                                                                 
| | (c) | Due from related parties                                                                        
| |     |                                                                                                 
| |     | Amounts due from related parties are comprised as
      follows:                                

| |                                                                                                                                  |   | 2012    |  |   | 2011      | 
| | -------------------------------------------------------------------------------------------------------------------------------- | - | ------- |  | - | --------- | 
| |                                                                                                                                  |   |         |  |   |           | 
| | Unsecured promissory notes, 1% per annum,
      due the earlier of 30    days after demand or the
      due date, if applicable: |   |         |  |   |           | 
| | Trevali                                                                                                                          | $ | -       |  | $ | 142,945   | 
| | Wealth                                                                                                                           |   | -       |  |   | 495,312   | 
| | Dorato                                                                                                                           |   | -       |  |   | 261,882   | 
| | Indico                                                                                                                           |   | 198,239 |  |   | 49,891    | 
| | Abzu Gold                                                                                                                        |   | 230,606 |  |   | 171,268   | 
| | IMM                                                                                                                              |   | -       |  |   | 18,805    | 
| | ITH                                                                                                                              |   | 1,141   |  |   | 22,899    | 
| | Others                                                                                                                           |   | 93,626  |  |   | 76,041    | 
| |                                                                                                                                  |   |         |  |   |           | 
| |                                                                                                                                  | $ | 523,612 |  | $ | 1,239,043 | 

The Company recovered $774,698 during
the year ended October 31, 2012 (2011 - $1,331,389) in rent and administration
costs from Wealth, ITH, Dorato, Indico, Balmoral, Abzu Gold, Corvus and LWTLC,
companies with common officers or directors.

Due to the current equity market
condition, during the year ended October 31, 2012 the Company assessed the
collectability of amounts due from related parties. The Company has concluded
the amounts due from Wealth and Dorato are unlikely to be collected in the
foreseeable future and have recognized an impairment loss of $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.

These related party transactions have
been measured by the exchange amount, which is the amount agreed upon by the
transacting parties.

32

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|10. | RELATED PARTY TRANSACTIONS (Continued)
|--- | --------------------------------------
|    |                                       
|    | (d)                                   
|    |                                       
|    |                                       

| |                            |   | 2012      |  |   | 2011      | 
| | -------------------------- | - | --------- |  | - | --------- | 
| |                            |   |           |  |   |           | 
| | Wages and benefits         | $ | 959,167   |  | $ | 578,333   | 
| | Share-based
      payments | $ | 1,481,212 |  | $ | 1,154,674 | 
| |                            | $ | 2,440,378 |  | $ | 2,022,160 | 

| | (e) | Loan receivable                                                                                                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                             
| |     | On January 14, 2011, the Company entered into a loan
      agreement with Kria Resources Ltd. (Kria) whereby the Company advanced
      Kria $8,064,000 (the Loan) and was due on January 13, 2012. The Loan
      bore interest at 10% per annum, calculated monthly, not in
  advance.
| |     |                                                                                                                                                                                                                                                                                             
| |     | The Company received repayment of the USD 8,000,000 loan
      plus USD 645,260 (totaling CAD $8,783,463) in interest from Trevali on
      January 16, 2012. The loan was repaid as follows:                                                                                               
| |     |                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                             

|11. | GEOGRAPHIC SEGMENTED DATA                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                             
|    | The Company operates in one industry segment, the mineral
      resources industry, and in six geographical segments, Canada, United
      States, Ghana, Peru, Mexico, and Argentina. The significant asset
      categories identifiable with these geographical areas are as
    follows:

| |                                         |   | October 31,
      2012 | 
| | --------------------------------------- | - | ---------------------- | 
| |                                         |   | Canada/US              | 
| |                                         |   |                        | 
| | Exploration and evaluation
      assets | $ | 76,887,162             | 
| | Cash and cash equivalents               |   | 2,111,708              | 
| | Resource related investments            |   | 2,571,811              | 
| | Others                                  |   | 12,510,277             | 
| |                                         |   |                        | 
| | Total Assets                            | $ | 94,080,958             | 
| |                                         |   |                        | 
| | Total liabilities                       |   | 7,695,639              | 
| | Interest revenue                        |   | 149,434                | 
| | Depreciation                            |   | 319,063                | 
| | Net loss                                |   | 8,874,384              | 

33

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|11. | GEOGRAPHIC SEGMENTED DATA
  (Continued)
|--- | ---------------------------------------

| |                                   |   | October 31,
      2011 |  
| | --------------------------------- | - | ---------------------- | -
| |                                   |   | Canada/US              |  
| |                                   |   |                        |  
| | Exploration and evaluation assets | $ | 53,783,967             |  
| | Cash and cash equivalents         |   | 5,819,881              |  
| | Resource related investments      |   | 32,551,104             |  
| | Others                            |   | 12,900,977             |  
| |                                   |   |                        |  
| | Total Assets                      | $ | 105,055,929            |  
| |                                   |   |                        |  
| | Total liabilities                 |   | 3,915,783              |  
| | Interest revenue                  |   | 1,659,273              |  
| | Depreciation                      |   | 244,935                |  
| | Net (income) loss                 |   | (41,813,006            | )

| |                              |   | November 1,
      2010 | 
| | ---------------------------- | - | ---------------------- | 
| |                              |   | Canada/US              | 
| |                              |   |                        | 
| | Resource properties          | $ | 2,588,332              | 
| | Cash and cash equivalents    |   | 6,192,603              | 
| | Resource related investments |   | 62,765,750             | 
| | Equity investments           |   | 5,236,540              | 
| | Others                       |   | 1,152,536              | 
| |                              |   |                        | 
| | Total Assets                 | $ | 77,935,761             | 
| |                              |   |                        | 
| | Total liabilities            |   | 594,499                | 
| | Interest revenue             |   | 36                     | 
| | Depreciation                 |   | 69,463                 | 
| | Net (income) loss            |   | 9,967,656              | 

|12. | 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.                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Other commitments are disclosed elsewhere in these
      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                          

34

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|13. | 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, 2012. 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 accounts payable 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
| | 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, 2012
    Level 1
    Level 2
    Level 3
    TotalResource related investments
    2,076,854
    494,957
    -
    2,571,811


October 31, 2011
    Level 1
    Level 2
    Level 3
    TotalResource related investments
    32,006,649
    544,455
    -
    32,551,104


November 1, 2010
    Level 1
    Level 2
    Level 3
    TotalResource related investments
    59,121,808
    3,643,942
    -
    62,765,750


35

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|13. | RISK AND CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
      (Continued)               
|--- | --------------------------------------------------------------------------------------
|    |                                                                                       
|    | The Companys exposure to risk on its financial
      instruments is summarized below:
|    |                                                                                       
|    | (a)                                                                                   
|    |                                                                                       
|    |                                                                                       

| |                              |   | Oct 31, 2012 |  |   | Oct 31, 2011 |  |   | Nov 1, 2010 | 
| | ---------------------------- | - | ------------ |  | - | ------------ |  | - | ----------- | 
| |                              |   |              |  |   |              |  |   |             | 
| | Bank accounts - Canada       | $ | 2,035,588    |  | $ | 5,821,354    |  | $ | 6,035,679   | 
| | Bank accounts - Ghana        |   | 638          |  |   | 1,473        |  |   | -           | 
| | Bank accounts - Peru         |   | 11,569       |  |   | 457          |  |   | 46,042,361  | 
| | Bank accounts -
      Others |   | 94,704       |  |   | 162,350      |  |   | 185,963     | 
| |                              | $ | 2,142,499    |  | $ | 5,985,634    |  | $ | 52,264,003  | 

| |     | 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 $523,612 due from related parties at
      October 31, 2012, of which $453,537 were past due (October 31, 2011 -
      $1,239,043, November 1, 2010 - $1,361,550), 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, 2012, the cash balance of $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 2013 (see notes 1 and 17). At October 31, 2012, the
      Company had accounts payable and accrued liabilities of $8,794,157, which
      are due within 30 days. The long-term liability of $280,606 is related to
      the lease obligation on the Companys leased grader.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

36

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|13.     | RISK AND CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
      (Continued)                                                                                                                                                                       
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                               
|        | (c)                                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                               
|**14.** | 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:

| |                                                          |   | 2012        |   |   | 2011         |  
| | -------------------------------------------------------- | - | ----------- | - | - | ------------ | -
| |                                                          |   |             |   |   | (note 15)    |  
| | Income (loss) before income taxes                        | $ | (10,507,323 | ) | $ | (20,730,955  | )
| | Canadian federal
      and provincial income tax rates   |   | 25.25%      |   |   | 26
      83% |  
| | Income tax expense (recovery)                            |   | (2,653,099  | ) |   | (5,562,115   | )
| | Increase (decrease) due to:                              |   |             |   |   |              |  
| |                                                          |   |             |   |   |              |  
| | Non-deductible expenses                                  |   | 50,938      |   |   | 38,991       |  
| | Stock-based compensation                                 |   | 845,991     |   |   | 469,049      |  
| | Non-taxable portion of capital gains                     |   | (686,660    | ) |   | (991,889     | )
| | Write-off of exploration and evaluation
      assets     |   | 692,168     |   |   | 3,275,441    |  
| | Losses for which no tax benefit has been recorded        |   | 2,869,339   |   |   | 5,535,023    |  
| | Change in enacted tax rates                              |   | 27,707      |   |   | 828,255      |  
| | Withholding taxes                                        |   | -           |   |   | 859,159      |  
| | Foreign exchange and other translation
      adjustments |   | 43,657      |   |   | -            |  
| | Difference between
      Canadian and foreign tax rates  |   | (103,265    | ) |   | (33,992      | )
| |                                                          |   |             |   |   |              |  
| | Income tax
      expense                                 | $ | 1,086,776   |   | $ | 4,417,922    |  

37

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|14. | INCOME TAXES (Continued)                                                                  
|--- | ------------------------------------------------------------------------------------------
|    |                                                                                           
|    | The components of unrecognized net deferred tax assets
      (liabilities) are as follows:

| |                                   |   | 2012       |  |   | 2011       |  
| | --------------------------------- | - | ---------- |  | - | ---------- | -
| |                                   |   |            |  |   |            |  
| | Non-capital loss carry-forwards   | $ | 10,559,384 |  | $ | 14,587,869 |  
| | property and equipment            |   | 208,258    |  |   | 133,630    |  
| | Share issue costs                 |   | 65,643     |  |   | 162,765    |  
| | Exploration and evaluation assets |   | 1,348,251  |  |   | 5,585,137  |  
| | Resource related investments      |   | 779,601    |  |   | (854,452   | )
| | Other                             |   | 779,113    |  |   | 1,450,635  |  
| |                                   |   |            |  |   |            |  
| |                                   |   | 13,740,250 |  |   | 21,065,584 |  

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      | 
| | --------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
| |                 |   |            |  |   |            |  |   |            | 
| | 2013            | $ | -          |  | $ | 1,597,076  |  | $ | 1,597,076  | 
| | 2014            |   | -          |  |   | 1,686,900  |  |   | 1,686,900  | 
| | 2015            |   | -          |  |   | 507,503    |  |   | 507,503    | 
| | 2016            |   | -          |  |   | 350,044    |  |   | 350,044    | 
| | 2017            |   | -          |  |   | 1,033,572  |  |   | 1,033,572  | 
| | 2018            |   | -          |  |   | 276,478    |  |   | 276,478    | 
| | 2019            |   | -          |  |   | 1,277,462  |  |   | 1,277,462  | 
| | 2020            |   | -          |  |   | 303,913    |  |   | 303,913    | 
| | 2021            |   | -          |  |   | 288,596    |  |   | 288,596    | 
| | 2022            |   | -          |  |   | 1,396,751  |  |   | 1,396,751  | 
| | 2023            |   | -          |  |   | 401,541    |  |   | 401,541    | 
| | 2026            |   | 1,236,469  |  |   | -          |  |   | 1,236,469  | 
| | 2027            |   | 3,393,725  |  |   | 69,804     |  |   | 3,463,529  | 
| | 2028            |   | 4,039,551  |  |   | 354,363    |  |   | 4,393,914  | 
| | 2029            |   | 2,635,510  |  |   | 230,673    |  |   | 2,866,183  | 
| | 2030            |   | 6,553,624  |  |   | 559,083    |  |   | 7,112,707  | 
| | 2031            |   | 1,301,329  |  |   | 659,878    |  |   | 1,961,207  | 
| | 2032            |   | 1,232,777  |  |   | 240,354    |  |   | 1,473,131  | 
| | Deferred expiry |   | -          |  |   | 6,307,268  |  |   | 6,307,268  | 
| |                 |   |            |  |   |            |  |   |            | 
| |                 | $ | 20,392,985 |  | $ | 17,541,259 |  | $ | 37,934,244 | 

38

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|15. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | As stated in note 2, these are the Companys the first
      annual consolidated financial statements prepared in accordance with IFRS.
      An explanation of how the transition from previous Canadian GAAP to IFRS
      has affected the Companys financial position and comprehensive income is
      set out in this note.                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The accounting policies set out in note 2 have been
      applied in preparing the consolidated financial statements as at and for
      the year ended October 31, 2012, the comparative information presented in
      these financial statements as at and for the year ended October 31, 2011
      and date of transition November 1, 2010.                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | First time adoption of IFRS                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | 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, including exemptions taken at the transition date:                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

39

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|15. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (Continued) First time adoption of IFRS
(Continued)
|--- | -------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                    
|    | (e)                                                                                                                
|    |                                                                                                                    
|    |                                                                                                                    

| |                                                      |   | October 31  |   |   | November 1 | 
| | ---------------------------------------------------- | - | ----------- | - | - | ---------- | 
| |                                                      |   | 2011        |   |   | 2010       | 
| |                                                      |   |             |   |   |            | 
| | Reduction of exploration and evaluation
      assets | $ | (11,713,033 | ) | $ | -          | 
| | Reduction of
      deferred income tax liability     | $ | 11,713,033  |   | $ | -          | 

| | (f) | Investments in associates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | As at November 1, 2010, the Company held approximately
      31.36% of the outstanding common shares of Abzu. On December 21, 2010,
      Totem Minerals Inc. acquired Abzu and changed its name to Abzu Gold Inc.
      Following the above acquisition, the Company held 16.32% of Abzu Gold and
      changed this investment classification to available-for-sale from the
      equity method.                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Under Canadian GAAP, the reclassification from equity
      investments to resource related investments was recorded at the carrying
      value of the equity investment at December 21, 2010. Under IFRS, the
      retained investment was measured at the fair value on the date of
      reclassification, with the difference between fair value and carrying
      value recorded in profit or loss. This change in accounting policy
      resulted in a $3,019,523 increase in gain on reclassification and a
      corresponding reduction in other comprehensive income for the year ended
      October 31, 2011.                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (g) | Cumulative translation differences                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | IFRS 1 allows that a first-time adopter may elect to deem
      all cumulative translation differences to be zero at the date of
      transition. The Company has elected this exemption and as such all
      cumulative translations amounts to November 1, 2010 are included in
      deficit.                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Functional and presentation currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | The functional currency of Cardero Ghana and Cardero Iron
      US is US dollars, and for all other entities within the Group, the
      functional currency is Canadian dollar, as at the transition date of
      November 1, 2010. The consolidated financial statements are presented in
      Canadian Dollar ($) which is the Groups presentation
currency.                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | IAS 21  The effects of Changes in Foreign Exchange
      Ratesdiffers from the Canadian GAAP equivalent, applied by the Group
      until October 31, 2011. IAS 21 requires an entity to measure its assets,
      liabilities, revenue and expenses in its functional currency. It has been
      determined that as at the transition date of November 1, 2010, the
      functional currency of Cardero Ghana and Cardero Iron US is US dollars
      (USD) and for all other entities within the Group, the functional
      currency is Canadian dollars. Prior to the adoption of IFRS, the
      functional currency of the Group was the Canadian Dollars ($).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Under IAS 21, the assets and liabilities of the Group are
      translated from Cardero Ghana and Cardero Iron US functional currency
      USD, to the presentation currency at the reporting date. The income and
      expenses are translated to the Groups presentation currency, which is $
      at the dates of the transactions. Foreign currency differences are
      recognized directly in other comprehensive income within the foreign
      currency translation reserve.                                                                                                                                                                                  

40

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|15. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (Continued) First time adoption of IFRS
(Continued)
|--- | -------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                    
|    | (g)                                                                                                                
|    |                                                                                                                    
|    |                                                                                                                    

| |                                              |   | October 31, |   |   | November 1, |  
| | -------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                              |   | 2011        |   |   | 2010        |  
| |                                              |   |             |   |   |             |  
| | Exploration and evaluation assets            | $ | (96,130     | ) | $ | (60,645     | )
| | Accumulated other
      comprehensive income | $ | 96,130      |   | $ | 60,645      |  

Prior Period Revisions

| | (h) | Investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | During the year ended October 31, 2012, an adjustment to
      correct an error in the accounting for resource related investments which
      occurred in the years ended October 31, 2010 and 2011 was recorded. The
      adjustment relates to the initial recognition and subsequent remeasurement
      of resource related investments at fair value and deferred taxes on
      unrealized gains and losses. As at and for the year ended October 31,
      2010, this correction results in a $2,080,100 increase in the carrying
      value of resource related investments, a $913,114 increase in accumulated
      other comprehensive income, and a $1,116,986 increase deficit. As at and
      for the year ended October 31, 2011, this correction results in a $908,643
      decrease in other comprehensive income, a $667,139 increase in net income,
      a $1,821,758 increase in accumulated other comprehensive income, and a
      $1,821,758 increase in deficit.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Impact on Consolidated Financial
  Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |                                                                          |   | October 31, |   |   | November 1, |  
| | ------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | -
| |                                                                          |   | 2011        |   |   | 2010        |  
| | Balance Sheet                                                            |   |             |   |   |             |  
| | Investments                                                              | $ | -           |   | $ | 2,080,100   |  
| | Accumulated other
      comprehensive income                             |   | (1,821,758  | ) |   | (913,114    | )
| | Deficit                                                                  |   | 1,821,758   |   |   | (1,166,986  | )
| | Comprehensive Loss                                                       |   |             |   |   |             |  
| | Impairment losses on available-for-sale
      investments                |   | 4,841,458   |   |   | -           |  
| | Unrealized (gain) loss on
      derivative investments                   |   | 316,183     |   |   | -           |  
| | Interest income                                                          |   | (238,623    | ) |   | -           |  
| | Realized (gain) loss on the
      sale of available-for-sale investments |   | (5,412,208  | ) |   | -           |  
| | Deferred tax expense (recovery)                                          |   | (173,949    | ) |   | -           |  
| | Net Income                                                               |   | (667,139    | ) |   | -           |  
| | Other
      Comprehensive Loss                                           |   | 908,643     |   |   | -           |  
| | Comprehensive Loss                                                       | $ | 241,504     |   | $ | -           |  

41

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|15. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (Continued)
|--- | ---------------------------------------------------------------------------
|    |                                                                            
|    | Prior Period Revisions (Continued)                                         
|    |                                                                            
|    | (i)                                                                        
|    |                                                                            
|    |                                                                            
|    |                                                                            
|    |                                                                            

| |                                   |   | October 31, 2011 |  
| | --------------------------------- | - | ---------------- | -
| |                                   |   |                  |  
| | Exploration and Evaluation Assets | $ | (988,347         | )
| | Comprehensive Loss and Deficit    | $ | 446,129          |  
| | Contributed Surplus               | $ | 542,218          |  

Reconciliation to previously
reported financial statements

A reconciliation of the above noted
changes is included in these following Consolidated Statements of Financial
Position and Statements of Comprehensive Income (Loss) for the dates and periods
noted below. The effects of transition from Canadian GAAP to IFRS on the cash
flow are not material; therefore a reconciliation of the Consolidated Statements
of Cash Flows has not been presented.

- Transitional Consolidated Statement of Financial Position Reconciliation 
  November 1, 2010.
- Consolidated Statement of Comprehensive Loss Reconciliation  year ended
  October 31, 2011.
- Consolidated Statement of Financial Position Reconciliation  October 31,
  2011

Reconciliation of pre-changeover CGAAP
Shareholders Equity to IFRS is included in Consolidated Statement of Financial
Position Reconciliation  October 31, 2011.

As there have been no adjustments to
the net cash flows, no reconciliation of the Statement of Cash Flows has been
prepared.

42

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|15. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (Continued)
      Transition Consolidated Statement of Financial
      Position Reconciliation  November 1, 2010
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                  |   |             |   |  | Prior     |  |   | Effect of     |   |  |        |  |       |             |  
| | ------------------------------------------------ | - | ----------- | - |  | --------- |  | - | ------------- | - |  | ------ |  | ----- | ----------- | -
| |                                                  |   | Canadian    |   |  | Period    |  |   | Transition to |   |  |        |  |       |             |  
| |                                                  |   | GAAP        |   |  | Revision  |  |   | IFRS          |   |  | Ref    |  |       | IFRS        |  
| |                                                  |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | ASSETS                                           |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Current                                          |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Cash and cash equivalents                        | $ | 52,264,003  |   |  | -         |  | $ | -             |   |  |        |  | **$** | 52,264,003  |  
| | Accounts receivable                              |   | 267,431     |   |  | -         |  |   | -             |   |  |        |  |       | 267,431     |  
| | Due from related parties                         |   | 1,361,550   |   |  | -         |  |   | -             |   |  |        |  |       | 1,361,550   |  
| | Prepaid expenses                                 |   | 335,493     |   |  | -         |  |   | -             |   |  |        |  |       | 335,493     |  
| |                                                  |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Total Current Assets                             |   | 54,228,477  |   |  | -         |  |   | -             |   |  |        |  |       | 54,228,477  |  
| |                                                  |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Property, Plant and Equipment                    |   | 197,737     |   |  | -         |  |   | -             |   |  |        |  |       | 197,737     |  
| | Resource Related Investments                     |   | 60,685,650  |   |  | 2,080,100 |  |   | -             |   |  | (h)    |  |       | 62,765,750  |  
| | Equity Investments                               |   | 5,236,540   |   |  | -         |  |   | -             |   |  |        |  |       | 5,236,540   |  
| | Exploration and Evaluation Assets                |   | 15,856,750  |   |  | -         |  |   | (60,645       | ) |  | (g)    |  |       | 15,796,105  |  
| |                                                  |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Total Assets                                     | $ | 136,205,154 |   |  | 2,080,100 |  | $ | (60,645       | ) |  |        |  | **$** | 138,224,609 |  
| |                                                  |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | LIABILITIES                                      |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Current                                          |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Accounts payable and
      accrued liabilities   | $ | 832,087     |   |  | -         |  | $ | -             |   |  |        |  | **$** | 832,087     |  
| | Income taxes payable                             |   | 26,847,314  |   |  | -         |  |   | -             |   |  |        |  |       | 26,847,314  |  
| |                                                  |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Total Liabilities                                |   | 27,679,401  |   |  | -         |  |   | -             |   |  |        |  |       | 27,679,401  |  
| |                                                  |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | SHAREHOLDERS EQUITY                             |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Share capital                                    |   | 69,890,947  |   |  | -         |  |   | -             |   |  |        |  |       | 69,890,947  |  
| | Contributed surplus                              |   | 14,726,585  |   |  | -         |  |   | -             |   |  |        |  |       | 14,726,585  |  
| | Accumulated other comprehensive
      income     |   | 30,227,593  |   |  | 913,114   |  |   | -             |   |  | (g, i) |  |       | 31,140,707  |  
| | Deficit                                          |   | (6,319,372  | ) |  | 1,166,986 |  |   | (60,645       | ) |  | (h, i) |  |       | (5,213,031  | )
| |                                                  |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Total
      Shareholders Equity                 |   | 108,525,753 |   |  | 2,080,100 |  |   | (60,645       | ) |  |        |  |       | 110,545,208 |  
| |                                                  |   |             |   |  |           |  |   |               |   |  |        |  |       |             |  
| | Total Liabilities
      and Shareholders Equity | $ | 136,205,154 |   |  | 2,080,100 |  | $ | (60,645       | ) |  |        |  | **$** | 138,224,609 |  

43

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|15. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (Continued)
      Consolidated Statement of Comprehensive Loss
      Reconciliation  Year ended October 31,
2011
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                            |   |             |   |   | Prior      |   |   | Effect of     |   |  |              |  |       |             |  
| | -------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ---------- | - | - | ------------- | - |  | ------------ |  | ----- | ----------- | -
| |                                                                                                                            |   | Canadian    |   |   | Period     |   |   | Transition to |   |  |              |  |       |             |  
| |                                                                                                                            |   | GAAP        |   |   | Revision   |   |   | IFRS          |   |  | Ref          |  |       | IFRS        |  
| |                                                                                                                            |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Administrative Expenses                                                                                                    |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Consulting fees                                                                                                            | $ | 1,324,798   |   | $ | -          |   | $ | -             |   |  |              |  | **$** | 1,324,798   |  
| | Corporate development                                                                                                      |   | 606,239     |   |   | -          |   |   | -             |   |  |              |  |       | 606,239     |  
| | Depreciation                                                                                                               |   | 244,935     |   |   | -          |   |   | -             |   |  |              |  |       | 244,935     |  
| | Insurance                                                                                                                  |   | 108,928     |   |   | -          |   |   | -             |   |  |              |  |       | 108,928     |  
| | Investor relations                                                                                                         |   | 650,779     |   |   | -          |   |   | -             |   |  |              |  |       | 650,779     |  
| | Office costs                                                                                                               |   | 736,844     |   |   | -          |   |   | -             |   |  |              |  |       | 736,844     |  
| | Professional fees                                                                                                          |   | 977,197     |   |   | -          |   |   | -             |   |  |              |  |       | 977,197     |  
| | Property evaluations                                                                                                       |   | 3,610,508   |   |   | -          |   |   | -             |   |  |              |  |       | 3,610,508   |  
| | Regulatory and transfer agent fees                                                                                         |   | 221,064     |   |   | -          |   |   | -             |   |  |              |  |       | 221,064     |  
| | Salaries and benefits                                                                                                      |   | 3,840,081   |   |   | 446,129    |   |   | -             |   |  | (a)          |  |       | 4,286,210   |  
| | Travel                                                                                                                     |   | 225,639     |   |   | -          |   |   | -             |   |  |              |  |       | 225,639     |  
| | Loss Before Other Items and Income                                                                                         |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Taxes                                                                                                                      |   | (12,547,012 | ) |   | (446,129   | ) |   | -             |   |  |              |  |       | (12,993,141 | )
| |                                                                                                                            |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Other Items                                                                                                                |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Foreign exchange loss                                                                                                      |   | 984,660     |   |   | -          |   |   | -             |   |  |              |  |       | 984,660     |  
| | Interest income, net of bank charges                                                                                       |   | 1,420,650   |   |   | 238,623    |   |   | -             |   |  | (j)          |  |       | 1,659,273   |  
| | Realized gain on sale of
      available-for-sale investments                                                              |   | 8,833,404   |   |   | 5,412,208  |   |   | -             |   |  | (k)          |  |       | 14,245,612  |  
| | Unrealized gain on derivative investments                                                                                  |   | (2,936,073  | ) |   | (316,183   | ) |   | -             |   |  | (h,j)        |  |       | (3,252,256  | )
| | Unrealized gain on fair
      value through profit or loss investment                                                      |   | (59,500     | ) |   | -          |   |   | -             |   |  |              |  |       | (59,500     | )
| | Write-off of resource properties                                                                                           |   | (12,206,614 | ) |   | -          |   |   |               |   |  |              |  |       | (12,206,614 | )
| | Impairment losses on
      available-for-sale investments                                                                  |   | (2,837,978  | ) |   | (4,841,458 | ) |   | (3,655,882    | ) |  | (h,l)        |  |       | (11,335,318 | )
| | Gain on the reclassification of
      investments from
      equity       investment to resource
      related investments |   | -           |   |   | -          |   |   | 3,019,523     |   |  | (f)          |  |       | 3,019,523   |  
| | Loss on equity investments                                                                                                 |   | (793,194    | ) |   | -          |   |   | -             |   |  |              |  |       | (793,194    | )
| |                                                                                                                            |   | (7,594,645  | ) |   | 493,190    |   |   | (636,359      | ) |  |              |  |       | (7,737,814  | )
| |                                                                                                                            |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Income (Loss)
      Before Income Taxes                                                                                    |   | (20,141,657 | ) |   | 47,061     |   |   | (636,359      | ) |  |              |  |       | (20,730,955 | )
| |                                                                                                                            |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Income Taxes                                                                                                               |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Current expense                                                                                                            |   | (859,159    | ) |   | -          |   |   | -             |   |  |              |  |       | (859,159    | )
| | Deferred expense                                                                                                           |   | (3,732,712  | ) |   | 173,949    |   |   | -             |   |  | (l)          |  |       | (3,558,763  | )
| |                                                                                                                            |   | (4,591,871  | ) |   | 173,949    |   |   | -             |   |  |              |  |       | (4,417,922  | )
| |                                                                                                                            |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Net Income (Loss) for the Period                                                                                           |   | (24,733,528 | ) |   | 221,010    |   |   | (636,359      | ) |  |              |  |       | (25,148,877 | )
| | Other
      Comprehensive Loss for the Period                                                                              |   | (21,152,029 | ) |   | 908,643    |   |   | (3,108,442    | ) |  | (f, g, j, k) |  |       | (23,351,828 | )
| |                                                                                                                            |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Comprehensive
      Loss for the Period                                                                                    | $ | (45,885,557 | ) | $ | 1,129,653  |   |   | (3,744,801    | ) |  |              |  | **$** | (48,500,705 | )
| |                                                                                                                            |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Basic and
      Diluted Income (Loss) Per Common Share                                                                     | $ | (0.36       | ) |   |            |   |   |               |   |  |              |  | **$** | (0.36       | )
| |                                                                                                                            |   |             |   |   |            |   |   |               |   |  |              |  |       |             |  
| | Weighted
      Average Number of Common Shares outstanding                                                                 |   | 68,988,456  |   |   |            |   |   |               |   |  |              |  |       | 68,988,456  |  

44

---

|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|15. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS (Continued)
      Consolidated Statement of Financial Position
      Reconciliation  October 31, 2011
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                |   |             |   |   | Prior      |   |   | Effect of     |   |  |            |  |       |                 |  
| | ---------------------------------------------- | - | ----------- | - | - | ---------- | - | - | ------------- | - |  | ---------- |  | ----- | --------------- | -
| |                                                |   | Canadian    |   |   | Period     |   |   | Transition to |   |  |            |  |       |                 |  
| |                                                |   | GAAP        |   |   | Revision   |   |   | IFRS          |   |  | Ref        |  |       | IFRS            |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | ASSETS                                         |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Current                                        |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Cash and cash equivalents                      | $ | 5,985,634   |   | $ | -          |   | $ | -             |   |  |            |  | **$** | **5,985,634**   |  
| | Accounts receivable                            |   | 1,434,077   |   |   | -          |   |   | -             |   |  |            |  |       | 1,434,077       |  
| | Due from related parties                       |   | 1,239,043   |   |   | -          |   |   | -             |   |  |            |  |       | 1,239,043       |  
| | Loan receivable                                |   | 8,580,096   |   |   | -          |   |   | -             |   |  |            |  |       | 8,580,096       |  
| | Prepaid expenses                               |   | 356,191     |   |   | -          |   |   | -             |   |  |            |  |       | 356,191         |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Total Current Assets                           |   | 17,595,041  |   |   | -          |   |   | -             |   |  |            |  |       | 17,595,041      |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Property, Plant and Equipment                  |   | 910,996     |   |   | -          |   |   | 7,210         |   |  | (g)        |  |       | 918,206         |  
| | Resource Related Investments                   |   | 32,551,104  |   |   | -          |   |   | -             |   |  |            |  |       | 32,551,104      |  
| | Exploration and Evaluation
      Advances      |   | 810,100     |   |   | -          |   |   | -             |   |  |            |  |       | 810,100         |  
| |                                                |   |             |   |   |            |   |   |               |   |  | (a, e      |  |       |                 |  
| | Exploration and Evaluation Assets              |   | 69,347,042  |   |   | (988,347   | ) |   | (11,869,807   | ) |  | & g)       |  |       | 56,488,888      |  
| | Reclamation
      Deposit                      |   | 115,000     |   |   | -          |   |   | -             |   |  |            |  |       | 115,000         |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Total Assets                                   | $ | 121,329,283 |   |   | (988,347   | ) | $ | (11,862,597   | ) |  |            |  | **$** | **108,478,339** |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | LIABILITIES                                    |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Current                                        |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Accounts payable and
      accrued liabilities | $ | 4,038,261   |   | $ | -          |   | $ | -             |   |  |            |  | **$** | **4,038,261**   |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Deferred income tax liability                  |   | 11,713,033  |   |   | -          |   |   | (11,713,033   | ) |  | (e)        |  |       | -               |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Total liabilities                              |   | 15,751,294  |   |   | -          |   |   | (11,713,033   | ) |  |            |  |       | 4,038,261       |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | SHAREHOLDERS EQUITY                           |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Share capital                                  |   | 107,237,122 |   |   | -          |   |   | -             |   |  |            |  |       | 107,237,122     |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Contributed surplus                            |   | 20,318,203  |   |   | (542,218   | ) |   | -             |   |  | (a)        |  |       | 19,775,985      |  
| | Accumulated other comprehensive
      income   |   | 9,075,564   |   |   | 1,821,758  |   |   | (3,108,443    | ) |  | (f-h, j-l) |  |       | 7,788,879       |  
| |                                                |   |             |   |   |            |   |   |               |   |  | (a, f,     |  |       |                 |  
| | Deficit                                        |   | (31,052,900 | ) |   | (2,267,887 | ) |   | 2,958,879     |   |  | h, j-l)    |  |       | (30,361,908     | )
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Total Shareholders Equity                     |   | 105,577,989 |   |   | (988,347   | ) |   | (149,564      | ) |  |            |  |       | 104,440,078     |  
| |                                                |   |             |   |   |            |   |   |               |   |  |            |  |       |                 |  
| | Total Liabilities and Shareholders Equity     | $ | 121,329,283 |   | $ | (988,347   | ) | $ | (11,862,597   | ) |  |            |  | **$** | **108,478,339** |  

45

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|CARDERO RESOURCE CORP.                     
|-------------------------------------------
|(AN EXPLORATION STAGE COMPANY)             
|Notes to Consolidated Financial Statements 
|(Expressed in Canadian Dollars)            
|Years ended
      October 31, 2012 and 2011

|16. | SUPPLEMENTAL CASH FLOW
  INFORMATION
|--- | ------------------------------------

| |                                                            |   | 2012      |  |   | 2011       | 
| | ---------------------------------------------------------- | - | --------- |  | - | ---------- | 
| |                                                            |   |           |  |   |            | 
| | Supplemental Cash Flow Information                         |   |           |  |   |            | 
| |                                                            |   |           |  |   |            | 
| | Accounts payable related to
      property expenditure     | $ | 7,815,244 |  | $ | 3,195,677  | 
| | Shares issued on Acquisition of Coalhunter
      (note 3)  |   |           |  | $ | 35,095,503 | 
| | Accounts receivable related to
      property expenditure  | $ | -         |  | $ | 769,880    | 
| | Shares issued for finders fee (notes 7(e) and
      9(a)) | $ | 900,000   |  | $ | -          | 
| | Income taxes paid                                          | $ | -         |  | $ | 25,601,634 | 

|17. | SUBSEQUENT EVENTS              
|--- | -------------------------------
|    |                                
|    | Subsequent to October 31, 2012:
|    |                                
|    | (a)                            
|    |                                
|    | (b)                            
|    |                                
|    | (c)                            
|    |                                
|    | (d)                            
|    |                                
|    | (e)                            

46

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**ITEM 19.**     **EXHIBITS**

|1.1  | (1)Current Notice of Articles                                                                                                                                                   
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                 
|1.2  | New Articles as
        amended and effective March 22, 2011                                                                                                                    
|     |                                                                                                                                                                                 
|4.1  | 2012 Incentive Stock
        Option Plan                                                                                                                                        
|     |                                                                                                                                                                                 
|4.2  | Form of Stock Option
        Agreement under 2012 Incentive Stock Option Plan                                                                                                   
|     |                                                                                                                                                                                 
|4.3  | Form of Subscription
        Agreement utilized in Cardero Private Placement which closed on November
        29, 2011                                                          
|     |                                                                                                                                                                                 
|4.4  | Form of Warrant
        Certificate utilized in Cardero Private Placement which closed on November
        29, 2011                                                             
|     |                                                                                                                                                                                 
|4.5  | Form of Subscription
        Agreement utilized in Cardero Private Placement which closed on December
        20, 2012                                                          
|     |                                                                                                                                                                                 
|4.6  | Arrangement Agreement
        dated April 18, 2011 between Cardero and Coalhunter with respect to the
        acquisition by Cardero of the outstanding securities of Coalhunter
|     |                                                                                                                                                                                 
|4.7  | Coal Tenure Option
        Agreement dated May 18, 2010 between Alan A. Johnson and Coalhunter                                                                                  
|     |                                                                                                                                                                                 
|4.8  | Coal Tenure Option
        Agreement Amending Agreement dated April 14, 2011 between Alan A. Johnson
        and Coalhunter                                                     
|     |                                                                                                                                                                                 
|4.9  | Coal Tenure Option
        Agreement Second Amending Agreement dated January 14, 2013 between Alan
        A. Johnson and Cardero Coal                                          
|     |                                                                                                                                                                                 
|4.10 | Coal Lease between
        Peace River Partnership and Coalhunter dated June 15, 2010                                                                                           
|     |                                                                                                                                                                                 
|4.11 | Joint Venture Agreement
        dated June 15, 2010 between Carbon Creek Partnership and Coalhunter                                                                             
|     |                                                                                                                                                                                 
|4.12 | Joint Venture Agreement
        Amending Agreement dated April 14, 2011 between Carbon Creek Partnership
        and Coalhunter                                                 
|     |                                                                                                                                                                                 
|8.1  | List of Subsidiaries
    (incorporated by reference to Item 4.C  Organizational Structure)                                                                                     
|     |                                                                                                                                                                                 
|12.1 | Certification of
        the Chief Executive Officer as required by Rule 13a-14(a) under the Securities
        Exchange Act of 1934                                            
|     |                                                                                                                                                                                 
|12.2 | Certification of
        the Chief Financial Officer as required by Rule 13a-14(a) under the Securities
        Exchange 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 | Consent of Norwest
        Corporation                                                                                                                                          
|     |                                                                                                                                                                                 
|15.3 | Consent of SRK
        Consulting (UK) Limited                                                                                                                                  
|     |                                                                                                                                                                                 
|15.4 | Letter from Smythe
        Ratcliffe LLP to Securities and Exchange Commission                                                                                                  
|     |                                                                                                                                                                                 
|15.5 | Letter from PricewaterhouseCoopers
        to Cardero dated April 3, 2012                                                                                                       
|     |                                                                                                                                                                                 
|15.6 | (1)Audit Committee Charter                                                                                                                                                      
|     |                                                                                                                                                                                 
|15.7 | (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.
| | --- | ---------------------------------------------------------------------------------------------------------------

120

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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/ Michael
HunterBy: Michael Hunter, President and Chief Executive Officer

Date:  February 28,
2013

121

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