By Steven Ralston, CFA
Yesterday, Petaquilla Minerals (PTQ.TO) reported third fiscal quarter results for the period ending February 28, 2013. Though gold production predictably declined due to the normal disruptions of adding incremental processing capacity, several positive disclosures were contained in the company’s filing. First, PDI (Panamanian Development and Infrastructure) contributed $4.5 million to the top-line as construction of the by-pass road is being completed. Second, Petaquilla booked $9.8 million in other income as a waiver of accrued royalties was recouped from Inmet as part of the settlement agreement. And third, also as part of the agreement, Inmet prepaid $13 million (10 years of annual rent for the land lease) to Petaquilla on February 28th.
For the third fiscal quarter, gold equivalent production declined 12.2 % sequentially from 20,518 ounces to 18,013 ounces, leading to sequential declines in revenues and gross operating profits. However, the declines were less than our expectations. Management had issued guidance warning of the expected work flow and production disruptions during the processing capacity expansion program which added a fourth ball mill, two additional leach tanks, two additional carbon-in-pulp (CIP) tanks and one additional thickener, along with doubling ADR (Carbon Adsorption, Desorption & Recovery) and electro-winning capacity. However, the existing ball mills, tanks and thickeners were kept in operation during most of time of the execution of the capacity expansion project, minimizing the impact to production.
For the quarter, earnings per diluted share were $0.07, well above expectations, primarily due to the positive aspects of the settlement agreement with Inmet, especially the recovery of the $9.8 million in accrued royalties. Revenues decreased 6.7% sequentially from $29.5 million to $27.5 million as the amount of gold equivalent ounces sold decreased 18.5% sequentially from 17,905 to 14,598 ounces. Gross operating profit decreased 5.5% sequentially to $14.0 million and the gross operating profit margin contracted 49 basis points to 63.0%. However, the company's cash & marketable securities improved, increasing to nearly $9.0 million from $1.3 million in the preceding quarter.
For fiscal 2013, management expects gold equivalent ounce production from the Molejón gold project to be between 75,000 and 80,000 ounces. Thereafter, driven by the additional processing capacity, 90,000 to 100,000 ounces are expected to be produced during fiscal 2014.
We reaffirm our Outperform rating; however, we are adjusting our price target to reflect the recent dramatic and historic decline in gold and silver prices this month. Since our valuation is based on a net present share value of attributable reserves and resources, our price target is impacted by the lower metal prices. Our adjusted target for the stock of Petaquilla Minerals is $1.25.
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