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Zacks initiates coverage of Petaquilla Minerals

12/22/2011

Steven Ralston, CFA

Zacks has initiated coverage of Petaquilla Minerals (PTQ) with an Outperform rating. Petaquilla Minerals Ltd. is a junior gold production and exploration company with a producing gold mine (Molejón) located in Panamá and other mineral exploration properties in Panamá and Spain. The Molejón gold project in north-central Panamá achieved commercial production in January 2010 and has poured 146,305 ounces of gold. Approximately 567,500 ounces have yet to be monetized from the proven and probable reserve. Production is expected to increase with the recent construction of two on/off leach pads. In addition, 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. Certain mineral concessions, such as Oro del Norte, are being advanced with exploration programs.

The recently acquired Lomero-Poyatos concessions in Spain are also expected to be advanced. Petaquilla Minerals acquired a 100% interest in Lomero-Poyatos through the acquisition of Iberian Resources on September 1st. Based on historical drilling results, a NI 43-101 compliant Technical Report (dated July 29, 2011) estimated that the inferred mineral resource contains 2.07 million ounces gold and 41.98 million ounces silver.

On December 20th, Petaquilla Minerals announced preliminary results for the second quarter of fiscal 2012 ending November 30, 2011. During the quarter, Petaquilla sold 15,959 ounces of gold generating revenues of $25.4 million. Gold poured was 18,100 ounces. The on/off leach pad project is just ramping up and added 180 gold ounces to production. Having commenced production at the end of the second fiscal quarter of 2012, management expects the on/off leach pad operation to recover 3,000 ounces Au during the third fiscal quarter. The company's cash position increased to $12.2 million.

Management’s focus in fiscal 2012 lies in boosting gold production at Molejón gold project, continuing exploration at the Oro del Norte concession, advancing the newly acquired Lomero-Poyatos concessions and pursuing the spin-out of Panamanian Development and Infrastructure Ltd. (the company’s in-house mining infrastructure business that was instrumental in bringing the Molejón mine to commercial production).

Our price target is based on an estimated share value of attributable resources. The methodology ascertains a value for each property and accounts for relevant balance sheet items such as working capital, PPE (property, plant and equipment), marketable securities and debt. The value of each individual property is determined by adjusting the value of current resources for the expected recovery rate, mining/processing costs and net smelter royalties, if any. Only the company’s percentage interest is attributed to the company’s value. Both Molejón and Lomero-Poyatos have 43-101 compliant Technical Reports. Based on our calculation of share value of attributable resources, the target for Petaquilla Minerals stock is $1.70 supporting our Outperform rating.
 

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