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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