Risk Reduced - Reward Very High- Market cap of ~$51.5M based on outstanding shares + in the money derivatives
- 100+ koz production for 2011 (FYE May 31)
- Life of Mine 7+ years (based on 2007 data)
- LOM cash cost of ~$450-550/oz
- 66,650 ounces payable
- ~$71.5M debt to be reduced by $40M after gold purchase agreement
A lot of low expectations have been set for Petaquilla, but so far it has managed to stay afloat despite all the problems and negative rumours. Production is ramping up with declining cash costs and the company may be at 100koz annualized rate pending FYQ1 data. With $1250 gold, cash costs of $550/oz ,and 93.4koz production (6.6koz payable), Petaquilla's forward operating cash flow would be ~$65.4M for an OCF multiple of just 0.8x. Using an OCF multiple of 4-6x, the company should be worth ~$261.5M to $392.3M or $2.03 to $3.05 per share. In 2012, OCF should be roughly the same assuming that partially expanded production just offsets the increased gold payable.
PTQ is very close to eliminating the debt obligation of $71.5M. Management has committed $40M to pay it down from the gold purchase agreement and I think the terms are good based on the structure outlined in the Subsequent Events section of FYE2010 financial statements. There is a 6 month grace period before any interest payments are due and will have two quarters of cashflow to further help pay the debt down. It also helps that the gold payable is backloaded as only about 550oz are payable for each of the first 8 months.
In sum, I believe that this is a great opportunity to buy PTQ cheap as it is highly undervalued based even against the junior producers. Although Petaquilla has one mine, it consists of some nice open pit high grades and there is good potential for further increased resources. The company is however lacking future growth with little in the pipeline so I suspect that it will either acquire an advanced stage project or merge with another company in the future. As for now, I look forward to upcoming resource updates and excellent cashflow which only gets better given their millions in tax credits.
PS: For the dude who insists on an independent resource update, it's coming soon as per FYE2010 MD&A.
"Independent consultants Geovectra completed the design of the open pit and respective life of mine plan and a 43-101 statement on mineable reserves will be issued in the second quarter of fiscal 2011."