By Steven Ralston, CFA
Last week on February 17th, Petaquilla Minerals (PTQ.TO) and (PTQMF) filed second fiscal quarter results for the period ending December 30, 2013. Gold equivalent production declined 67.0% sequentially from 9,452 ounces to 3,120 ounces despite an easy comparison. Mining operations continued to be disrupted from the reassignment of some mining and crushing equipment towards the efforts to make timely deliveries of aggregate to the Cobre Panamá copper project. The requirement for increased capacity is necessary since lower ore grades are being processed now. Management expects the mining and process operations to be re-balanced during the course of the third fiscal quarter. Management also cited general maintenance of the Molejón processing plant was conducted during most of the month of December 2013 as the cause for the lower gold production. However, articles in Panamanian newspapers report that a labor protest concerning non-payment of wages by Petaquilla Minerals to its employees was occurring during December, which would have been also a factor related to the lower-than-expected gold production and aggregate revenue. In addition, the average realized gold equivalent price declined 5.0% sequentially to $1,247 per ounce. The company again drew upon inventoried bullion and sold 4,852 gold equivalent ounces. Sequential revenues from the sale of gold equivalent ounces declined 53.4%. Revenue from the aggregate business was $4.58 million, representing a 42.6% decline sequentially. The company reported a loss of $10,971,380 (or $0.05 per diluted share).
The operational disruptions contributed to the continuing inability for Petaquilla to fulfill its gold and silver delivery obligations to Deutsche Bank. The company and Deutsche Bank continue to negotiate an agreement to resolve the situation. In addition, the company’s working capital deficiency continues to expand.
On February 12th, an article in PanamaAmerican.com stated that Petaquilla Minerals entered into a mediation process to settle dispute with Minera Panama S.A. (First Quantum). Prior to First Quantum’s acquisition of Inmet, Petaquilla Minerals and Inmet signed an agreement for the delivery of aggregate materials and screened rocks with a total value up to $100 million over a three-year period. News flow appears to indicate that First Quantum is not adhering to the agreement, and the situation has entered into mediation. Management’s announcement of an expected material event may be related to the strained relationship between First Quantum and Petaquilla Minerals.
We maintain our Neutral rating despite the loss of mining rights to Lomero-Poyatos, an increasing working capital deficiency and lower-than-expected gold production. There is value in the gold and silver deposits at the Molejón mine and surrounding environs, along with the well-designed and functional processing plant. Management’s announcement that a material event is forthcoming may serve as a catalyst to reverse the deteriorating circumstances at Petaquilla Minerals.
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