Petaquilla Minerals Ltd PTQMF

Makes No Sense

[wwadehammer]

They added a ball mill and related equipment in November 2012 to increase production 30 percent.  Then they started ramping down production five months later supposedly because they needed the crushing and hauling equipment to provide aggregate to FQ.  They were leasing the trucks and they should have easily been able to lease more trucks and could have leased all the crushing equipment they neeed.  Why in the world didn't they?  Only thing I can think of is that they didn't pay the bills timely on the old lease agreements and no one would agree to lease them more equipment without cash in advance payments.  As the company was out of cash, it couldn't operate the mine and provide aggregate at the same time.  Just poor management.

The companies cash costs were averaging around $575 to produce an ounce of gold in 2012 and early 2013.  Even with gold at $1,200 an ounce the cash profit per quarter was over $600 an ounce.  With the new plant equipment supporting 30 percent more production, they should have been able to produce around 22,000 ounces per quarter.  This would have generated over $13,000,000 cash per quarter including keeping the DB agreements current.

Management expected the red kite deal to go through so they started ramping up Lom Poy, added to the mill, kept the expensive drilling program going in Panama, and began building the heap-leach pads.  Then the bottom fell out at the start of 2013.  The price of gold collasped and the red kite deal fell through.  Management spent cash coming in as if it was water and didn't pay down accounts payable.  Without being able to produce gold, the situation has just gotten worse and worse.  Management started negotiations with FQ in May 2013 but as each month passed without an agreement, the company moved closer to bankruptcy.

If a deal is reached for $60 million, then I would assume the first order of business would be to bring current the equipment lease agreements and pay in advance for whatever equipment they need to bring the mine back into operation. I would guess that would be around $10 to $20 million.They also have to bring DB current or if DB forces them to, pay off all the agreements and bank loans.  About $40 million to pay off completely and maybe $10 million to bring all the DB loans current.  You can see why management would prefer not to pay off the DB loans.  They also have to meet back payroll.  Add in start up costs for the plant and the heap-leach pads and you can see that the $60 million is barely enough to climb back on our feet assuming DB play's along with us.

The last thing is, Jaywalker over on IHUB stated that the were dismantling the ball mills.  That makes no sense on several levels.  First, they have layed-off the workforce.  So who's doing the dismantling, Mr. Fifer?  Why spend any money on it at all?  Second, the plant is shut down.  There is no need to overhaul the equipment unless the overhaul is badly needed and you plan to re-start  operations soon. That sounds the most logical.  Management knows a deal for $60 million is coming and has scraped together enough money to start an over haul in preparation to re-start operations.  Lets hope so.