Petaquilla Minerals announces preliminary quarterly results
Steven Ralston, CFA
Petaquilla Minerals (T.PTQ) hosted its preliminary quarterly results conference call today. During the fourth fiscal quarter, gold poured increased 25.2% sequentially versus the third fiscal quarter from 14,163 to 17,725 ounces, generating revenues of $22.8 million. For the fiscal year ending May 31, 2012, Petaquilla produced 68,000 ounces of gold. With an average realized price of $1,520, the company generated $93.1 million in gross revenues during the fiscal year. Management expects production at Molejón to increase approximately 30% by early fall as the company installs the 7th and 8th leach tanks and the 7th and 8th CIP stacks into the processing circuit. In addition, the installation of a 4th ball mill should be complete by October, increasing grinding capacity by 1,100 tonnes per day.
Within the next month, management expects to file another updated 43-101 reserve report, which will not only include an updated reserve on Molejón, but also an initial resource estimate on Botija Abajo and Brazo. Also, a 43-101 technical report concerning Palmilla and Oro del Norte is expected during the fourth quarter.
The final documentation for the spin-off of PDI was submitted to Canadian regulators this week. The company is now awaiting a response, but anticipates calling a Special Shareholders Meeting in July to complete the process of spinning out PDI to the shareholders of Petaquilla Minerals. In the conference call, management indicated that PDI is expected to generate $45 million in revenues during the first 12 months of independent operation.
At the Lomero-Poyatos concessions, all authorizations to begin the development of the Lomero underground mine have been received. Currently, the development plan is being formulated to dewater the mine and construct a water treatment plant to manage the underground water system. Management is still committed to shipping 20-ton containers of Spanish ore to the Molejón project in Panamá for processing by calendar year-end. With the anticipated gold value between $575 and $720 per ton (average grade between 12 and 15 g/t), along with a high silver content, the project with estimated transportation costs of $75 per ton is considered economically feasible.
Also, in the last few weeks, Petaquilla Minerals filed an updated 43-101 on Molejón and a revised 43-101 on Lomero-Poyatos. The revised technical report on the Molejón project included the addition of a proven and probable silver reserve of 1,008,693 ounces and the identification of 61.4 million tonnes of waste material as construction-grade aggregate. On the other hand, the revised technical report on the Lomero-Poyatos project removed references to the open pit resources since the open pit resources “do not have reasonable prospects for economic extraction at the present time.” However, the Behre Dolbear International report reconfirmed the inferred resource estimates under an underground mining scenario, specifically 6.07 million tonnes with an average grade of 4.25 g/t Au and 88.74 g/t Ag, containing approximately 830,000 ounces gold and 17.3 million ounces silver.
These important modifications affected our valuation model. The revised 43-101 on Lomero-Poyatos reduced the estimated inferred resources from 2.07 million ounces Au and 41.98 million ounces Ag to approximately 830,000 ounces Au and 17.3 ounces Ag (as a result of only in an underground mining scenario). On the other hand, the valuation was enhanced by reducing the life of mine to nine years (conservative in comparison to management’s six-year goal) and by including the silver resource in the model (due to higher confidence in the silver resource). Also, the Forward Silver Purchase Agreement not only motivated us to add the silver resource at Lomero-Poyatos, but also at Molejón. With the issuance of more warrants and options, we began to use fully diluted shares instead of shares outstanding. Lastly, the liability for debt and capital leases was significantly reduced by 40% ($6.5 million). Based on our calculation of share value of attributable resources, the target for Petaquilla Minerals stock has been adjusted to $1.45. We reaffirm our Outperform rating.
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