Land Rights of Petaquilla Upheld by Panamanian Supreme
Court
By Steven Ralston, CFA
Last week, the Supreme Court of Panama upheld the decisions of
the National Authority of Land Administration to deny Minera
Panama's request to place a tailings facility within the
concessions of
Petaquilla Minerals (Toronto:
T.PTQ
) (OTC BB:
PTQMF
)
. Minera Panama is a subsidiary of
Inmet Mining (Toronto:
T.IMN
) (OTC Markets:
IEMMF
).
Recall that Inmet unsuccessfully attempted to acquire the
Panamanian assets of Petaquilla Minerals last year. The increased
offer of $0.60 per share insufficiently reflected Petaquilla's
value. Petaquilla is a strategic asset for the completion of
Inmet's Cobre Panamá project, which is the largest mining project
ever undertaken in Central America and potentially could become
the second most important copper mine in the world.
The Cobre Panamá project consists of several conventional open
pit mines and the associated infrastructure to produce copper,
gold, silver and molybdenum. The Basic Engineering Summary Report
proposes the construction of three pits (Colina, Valle Grande and
Botija) and four associated waste dumps. Without an agreement
with Petaquilla, Minera Panama is unable to locate the waste
dumps as planned.
Minera Panama, may still be able to develop the Cobre Panamá
project but with inefficiencies that will require additional
capital costs. Minera Panama has the required permits to begin
construction of the project; however, the construction and
optimal placement of the waste dumps will require either the
acquisition of the Panamanian assets of Petaquilla or the consent
from Petaquilla for access to the land, which at this point would
most likely require a sizable negotiated fee or compensation set
by arbitration as provided for in Petaquilla Law 9. As stated by
Inmet's management, though in a different context, the
acquisition of Petaquilla would eliminate a potential source of
disruption to the development of Cobre Panamá.
In developing Cobre Panamá, Inmet has committed considerable
capital, approximately $3.0 billion through the end of 2012, with
the projected total capital cost of the project being $6.18
billion. The $140 million ($0.60 per share) offer for Petaquilla
Minerals was minor (less than 3%) compared to the potential
sub-optimal development of Cobre Panamá and/or the legal costs to
acquire access to the required lands.
Possibly the current hostile offer by First Quantum Minerals
Ltd. (FM:
TSE
) for Inmet Mining distracted Inmet's management from pursuing
the acquisition of Petaquilla. If First Quantum's takeover is
successful, the management of First Quantum should soon
recognized the strategic importance of acquiring Petaquilla's
Panamanian assets and be willing to pay a fair price.
We reaffirm our Outperform rating of Petaquilla Minerals and
price target of $1.70.
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