Steven Ralston, CFA
Petaquilla Minerals (Toronto:PTQ.TO) and (OTC BB:PTQMF) is a junior gold production and exploration company with a producing mine in Panamá and numerous mineral exploration properties in Panamá, Spain and Portugal. The Molejón gold project in north-central Panamá achieved commercial production in January 2010. Through the third fiscal quarter, the company has poured 216,100 ounces of gold, leaving approximately 494,398 ounces yet to be monetized from the proven and probable reserve delineated in the most recent 43-101 compliant mineral reserve report. Average production over the last two years has been slightly above 18,000 gold equivalent ounces per quarter. With the addition of on/off leach pads, which are expected to be commissioned during fiscal 2014, incremental production should be realized.
Petaquilla successfully asserted its rights over claims in the area of the Cobre Panamá copper project being advanced by First Quantum Minerals. In consideration for land access, Petaquilla received (through PDI) a $75 million contract for aggregate procurement, $13 million for 10 years of land lease, $13.3 million waiver of royalties, etc., all of which total approximately $150 million. NI 43-101 compliant estimates for the Botija Abajo and Palmilla deposits were released in the early 2013, which contribute $26.9 million (or $0.10 per diluted share) to the NPV to our valuation model.
In Spain, Petaquilla Minerals owns a 100% interest in Lomero-Poyatos through the acquisition of Iberian Resources. Based on historical drilling results, a NI 43-101 compliant Technical Report (dated May 21, 2012) estimates that the inferred mineral resource in an underground mining scenario contains 830,000 ounces Au and 17.3 ounces Ag. Petaquilla completed the first phase of twin drilling of historical holes and is constructing a mine access ramp to allow for additional twin drilling, which should contribute to upgrading the existing NI 43-101-compliant Inferred resource estimate to the Measured and Indicated categories.
In Portugal, two rigs are turning at the Jales-Gralheira concession located in Vila Real District of northern Portugal, approximately 330 kilometers north-northeast of Lisbon. The concession encompasses 1,540 hectares and contains an area of historic mining operations. In modern times, the Jales mine has produced 830,000 ounces of gold and almost 3 million ounces of silver between 1933 and 1992. The first mining operations at Jales-Gralheira date back to Roman times in the 1st and 2nd centuries A.D. Petaquilla is advancing studies toward an updated NI 43-101 compliant resource estimate. The last technical report filed by Kernow Mining in November 2007 estimated a resource (at a 3 g/t Au cut-off) in the combined Measured and Indicated categories of 101,593 ounces Au and 446,567 ounces Ag, along with an Inferred resource estimate of 147,786 ounces Au and 483,621 ounces Ag.
Management’s focus during fiscal 2014 lies in boosting gold production at Molejón gold project through capacity expansion, advancing the Lomero-Poyatos concessions to production, continuing exploration at Brazo and Oro del Norte, and the initiation of exploration of Jales-Gralheira in Portugal, along with pursuing the spin-out of Panamanian Development and Infrastructure Ltp;nbsp;and Oro del Norte, and the initiation of exploration of Jales-Gralheira in Portugal, along with pursuing the spin-out of Panamanian Development and Infrastructure Ltd. (PDI). Petaquilla is expected to file fiscal year-end financial results for fiscal 2013 and the accompanying MD&A report near the end of August.
We reaffirm our Outperform rating; however, we are adjusting our price target to reflect the recent dramatic decline in gold and silver prices during the last few months. 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 $0.94.
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Steven Ralston, CFA