Petaquilla Minerals Ltd.
Current Recommendation
Prior Recommendation Date of Last Change
Current Price (01/03/14)
Six- Month Target Price
SUMMARY DATA
(T.PTQ TSE)
OUTLOOKT.PTQ: Rating lowered to Neutral on loss of Lomero-Poyatos mining concessions
Late last week, the Regional Ministry of Economy, Innovation, Science and Employment announced that the mining permits for the Lomero-Poyatos concessions had been revoked due to inactivity which prompted us to lower our rating to Neutral. In addition, gold production continues to be less than expectations due to disruptions in mining operations from the reassignment of mining equipment towards deliveries of aggregate to the Cobre Panamá copper project. During the most recent quarter, revenues from aggregate operations increased to $7.98 million, which represented 38.7% of total revenue
KEY POINTS
Petaquilla Minerals is a junior gold production and exploration company with a producing mine in Panamá and numerous mineral exploration properties in Panamá and Portugal. The Molejón gold project in north-central Panamá achieved commercial production in January 2010 and has poured 254,857 ounces of gold. Approximately 473,315 ounces have yet to be monetized from the proven and probable reserve delineated in the most recent 43-101 compliant mineral reserve report at Molejón. Within 20 kilometers, the company controls the Palmilla gold deposit (M&I resource of 509,000 ounces Au) and the Botija Abajo deposit (proven and probable resource of 106,739 ounces Au).
Petaquilla Minerals holds the mineral exploration and development rights to 842 square kilometers of concession lands that contain gold, copper and molybdenum deposits in Panamá. Oro del Norte and Brazo, continue to be advanced with exploration programs. NI 43-101 compliant estimates for the Botija Abajo and Palmilla deposits were released in the early 2013 adding $34.5 million (or $0.12 per diluted share) to the NPV to our valuation model.
An updated NI 43-101 compliant estimate on the Palmilla gold deposit was announced on October 9, 2013. The report expanded and upgraded the resources from an estimated inferred resource of 502,800 gold equivalent ounces (using a cutoff grade of 0.30 g/t Au Eq.) to an estimated measured & indicated resource of 841,000 gold equivalent ounces and an inferred resource of 269,000 gold equivalent ounces (using a cutoff grade of 0.35 g/t Au Eq. Without even considering the significant upgrade of the resource, it can be stated that the estimate increased 120%. The updated estimate contributes $53.2 million (or $0.21 per diluted share) to the NPV to our valuation model.
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 (which was subsequently increased to $100 million), $13 million for 10 years of land lease, $13.3 million waiver of royalties, etc., all of which total approximately $150 million.
On/off leach pads have been constructed at Molejón. During fiscal 2012, the on/off leach operation produced approximately 300 ounces. The start-up and construction of the operation continues, though no additional production was reported during fiscal 2013. Management expects this incremental leach operation to be commissioned during calendar 2014.
On January 2, 2014, the Regional Ministry of Economy, Innovation, Science and Employment announced that the mining permits for the Lomero-Poyatos concessions were revoked due to inactivity. Petaquilla Minerals had owned a 100% interest in Lomero-Poyatos through the acquisition of Iberian Resources.
During the fourth fiscal quarter, the status of the Forward Gold Purchase Agreement with Deutsche Bank required the declassification of PDI as held-for-distribution despite management s continued plans for a spin-out. Therefore, the company is pursuing a course to refinance and close the gold and silver contracts. Also, both events had impacts on the balance sheet and income statement. Management s focus during fiscal 2014 lies in boosting gold production at Molejón gold project, though initial expectations of producing approximately 100,000 ounces appear out of reach. In addition, management is actively pursuing financing alternatives to fund developmental plans (including exploration at Brazo and Oro del Norte in Panamá and Jales-Gralheira in Portugal), re- finance short-term liabilities and terminate the Deutsche Bank forward gold and silver purchase agreements and convertible loan. Management may also pursue a judicial remedy to the loss of the mining rights to the Lomero-Poyatos concessions. We reduce our rating on Petaquilla Minerals to Neutral and adjust our target to $0.73 due to several factors, including the loss of mining rights to Lomero-Poyatos, an increasing working capital deficiency and lower prices of gold and silver.
Results for first fiscal quarter
On November 22, 2013, Petaquilla Minerals filed first fiscal quarter results for the period ending September 30, 2013. Gold equivalent production declined 22.5% sequentially from 12,191 ounces to 9,452 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. Additional equipment has been procured, and management expects the mining and process operations to be re-balanced during the course of the second fiscal quarter. In addition, the average realized gold equivalent price declined 10.9% sequentially to $1,312 per ounce. The company again drew upon inventoried bullion and sold 10,191 gold equivalent ounces; nevertheless, sequentially revenues from the sale of gold equivalent ounces declined 28.2%. Revenue from the aggregate business was $7.98 million and increased to comprise 38.7% of total revenues for the quarter. The company reported a loss of $2,105,435 ($0.01 per diluted share).
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