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PTQ,TO - Petaquilla Analyst Day & offer expected from Inmet

By Steven Ralston, CFA

There have been several significant developments and announcements concerning Petaquilla Minerals (PTQ.TO) in the last few weeks: 1) Inmet intends to make an offer for PTQ (currently at $0.48 per share); 2) management hosted the company’s first Analyst Day and 3) a NI 43-101 compliant reserve report on Botija Abajo was released. In addition, Petaquilla announced a major debt financing both for the development of Lomero-Poyatos and Molejón and for unwinding the forward gold and silver purchase contracts with Deutsche Bank. Incorporating recent developments into our valuation model, we have raised our price target to $1.70. 

On September 5, 2012, Inmet Mining Corporation (INM.V) announced it’s intention to make an offer to acquire all of the outstanding common shares of Petaquilla Minerals for C$0.48 in cash or .0109 Inmet share for each Petaquilla common share or combination thereof. The value of the offer is approximately C$112 million. If the acquisition is supported by Petaquilla’s Board, Inmet would permit the spin-out of Petaquilla’s Spanish assets (Lomero-Poyatos) to PTQ shareholders. Petaquilla’s stock rallied 65.7% to $0.58 on the news. 

Inmet is developing Cobre Panama copper-gold project in Panamá. With an estimated capital cost of US$6.2 billion, the Cobre Panama project is fully financed with $4.0 billion to be committed by the end of 2012. Inmet, which owns an 80% interest in Cobre Panama (KPMC owns the other 20%), is a well-capitalized mining company operating copper and zinc projects in Finland, Turkey and Spain.

The offer, when officially made in accordance to the security laws of Canada, is fully financed and does not require approval by Inmet’s shareholders. Also, the offer is contingent on receiving at least 50.1% of Petaquilla’s shares (on a fully diluted basis) and on no further debt or equity financings being completed by Petaquilla, specifically mentioning the recently announced US$210 million debt offering. The Board of Directors and management of Petaquilla are in the process of considering and evaluating the Inmet’s announcement. Meanwhile, management is continuing with the road shows for the planned $210 million debt offering.

In early September, Petaquilla Minerals hosted an Analyst Day in Toronto. Simultaneously, a NI 43-101 compliant estimate for the Botija Abajo deposit was released adding $13.0 million (or $0.05 per diluted share) to the NPV to our valuation model. In addition, to providing an update on Molejón, a timeline was presented for Lomero-Poyatos. As part of a bulk volume test, the shipping of ore-laden earth is still expected to begin in December 2012. A separate processing line will be assembled in Panamá and is currently projected to become operational by June 2012. Management plans for a processing plant in Spain to be constructed within the next 12 to 15 months with processing operations targeted to begin by mid-2014.

These important modifications affected our valuation model. In addition, the recent increase of gold and silver prices added $0.13 to the price target. Based on our calculation of share value of attributable resources, the target for Petaquilla Minerals stock has been raised to $1.70. We reaffirm our Outperform rating.

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