Furthermore, Petaquilla is also strategically poised to assume outright ownership of several stand-alone gold-silver deposits, each with one-million-ounce-plus potential for gold, alone. One such deposit that already benefits from a drill-inferred resource base and plenty of scope for expansion has become the Company’s near-term focus. A production decision is expected to be made before the year’s end.

 

Accordingly, SmallCapMedia believes that Petaquilla is unquestionably one of the most undervalued investment opportunities in the natural resources sector. Indeed, there is already considerable intrinsic value built into the Company’s share price that has been largely overlooked by the investment community. But that is about to change for a number of compelling reasons. Not the least of which is the fact that a dynamic new management team is breathing new life into the Company.

 

Moreover, the advent of a recently revitalized market for precious and base metals, alike, is dramatically improving the overall economic picture for Petaquilla’s joint ventured flagship copper deposit, which is part of the Minera Petaquilla S.A. Project. (The project languished for several years during a drawn-out slump in the mining industry that only ended in early 2003). The burgeoning global demand for metals, especially copper, warrants taking the last few steps towards bringing this world-class deposit into production. Likewise for Petaquilla’s adjacent Molejon gold-silver deposit — though a production decision for this much smaller and more manageable project could come much sooner, probably within 9-12 months.

 

Let’s first consider the one “company maker” project that is the greatest catalyst to much higher share price multiples for Petaquilla. This is the jewel in the crown of a richly mineralized mining camp that hosts at least four gold-silver-copper-molybdenum porphyry deposits, as well as three gold-silver deposits. Significantly, all of these discoveries are closely clustered together on the Company’s core jointly held land concession in north-central Panama. Located no more than 15 kilometres from the Caribbean Sea, they are in fact strategically situated within 100 kilometres of the Panama Canal. Petaquilla also wholly-owns exploration rights to hundreds of square kilometers of concessions that surround the joint-ventured main project area. They too are in comparably close proximity to the Panama Canal.

 

By way of explanation, Petaquilla is partnered with Inmet and Teck in the 135-square-kilometre mining district where seven of the known deposits have been discovered. The Company has a 52% interest in all of them. They are collectively known as the Minera Petaquilla S.A. Project. The centerpiece of this much-envied land concession encompasses two predominantly copper-gold bulk tonnage ore bodies known as the Botija and the Petaquilla /Valle Grande porphyry deposits.

 

They boast a final bankable feasibility study (an independently formulated blueprint for a mine) attesting to a proven mineral reserve of 1.115 billion tonnes of ore grading 0.50% copper, 0.09 g/t gold, 0.015% molybdenum, as well as recoverable silver. In turn, this translates into 9.4 billion ounces of copper, 1.37 million ounces of gold, 24.1 million ounces of silver and 131.1 million pounds of molybdenum. Due to the epic size of this world-class project, an impressive mine life of nearly a quarter of a century (or even longer) has also been calculated.

 

The estimate of mineral reserve in the feasibility study uses substantially the same terminology for “mineral reserve” as is required under National Policy 43-101 guidelines — a Canadian federal government recognized standard of a “mineral reserve”.  There is no doubt as to the veracity and accuracy of these figures, but they will be brought up-to-date using government-approved technical criteria and guidelines. Petaquilla and its partners intend to conduct an updated scoping study or desktop mine model in the near future. This cost-efficient analysis will serve the purpose of re-evaluating the deposit’s economic fundamentals in light of a much improved business environment for mining large, low-cost ore bodies and meet all 43-101 requirements.

Last updated in 1998, the feasibility study suggests that the project's net present value is in excess of U.S. $500 million using values of U.S. $1.10 lb. copper, U.S. $375/oz. gold, U.S. $3.50/lb. molybdenum and U.S. $4.50/oz. silver. This figure also factors in a 10% discount rate and an ore concentrate-processing rate of 120,000 tonnes per day. It should also be noted that this valuation preceded an across-the-board surge in metal prices during the last couple of years.

In a “rising tide” market for metal prices, SmallCapMedia believes that the deposit’s fundamental economic picture promises to go from strength to strength. Consider the fact that as of mid April an ounce of gold is trading in the U.S. $430 range, while silver is trading at around U.S. $7.50/oz. Meanwhile, copper is flirting with US $1.50/lb and molybdenum has catapulted to over US $30/lb.

Furthermore, there are several other major value drivers for this huge multi-metals treasure trove. First, this project (which is still open for further expansion) is at the upper-end in terms of size when compared to most of the world’s copper-gold porphyry mines. This presents the opportunity to realize impressive economies of scale, thereby significantly mitigating the future mine’s capital costs.

 

Second, the mineral inventory consists of near-surface bulk tonnage ore that is amenable to open pit mining. It also stands to benefit from a low stripping ratio of approximately 1:1 (amount of waste rock compared to ore). In other words, all these favourable logistics suggest that the ore can be mined very inexpensively — which more than compensates for its modest overall grade.

 

The project’s numerous merits are also enhanced by political and geographical considerations. For instance, Panama is a politically stable, emerging economy with a longstanding pro-foreign investment business culture. The project is also situated close to the Panama Canal, where concentrate can be shipped with equal ease to markets in North America, Asia and Europe. And it benefits from excellent infrastructure in the form of an ample supply of power, water and local labour.

 

Another key advantage that is worthy of reiteration is the fact that one of the two deposits involved — namely the Petaquilla/Valle Grande find — offers untapped potential for further expansion. On this note, this collective discovery has already been hailed as one of the world’s top five undeveloped copper deposits by CRU International Ltd., an internationally renowned copper consultancy firm. 

 

Most importantly, however, Petaquilla is “carried” (exempt) on all developmental costs involved in bringing a mine into production. As the Company that made this discovery back in 1992, Petaquilla has agreements in place that require its senior joint venture partner to earn-in on the project by footing a large percentage of these steep developmental expenditures.

 

This should be no great financial burden as the Company’s prestigious partner is Teck Cominco Ltd., a Canada-based international mining heavyweight with nearly a century’s experience and very deep pockets. The other partner is Inmet Mining Corporation, an emerging mid-sized producer that has earned a solid reputation since its inception in 1987 by primarily focusing on developing copper deposits. 

 

Teck Cominco’s contribution to this project thus far has been very significant. It commissioned the previously mentioned multi-million dollar feasibility study.  Unfortunately, the timing of its completion in 1997 was less than ideal as the mining industry was headed for a five-year recession. Copper prices were also caught in the downdraught. So Teck Cominco opted to mothball the mine’s development until a more opportune time. And that’s the way things remained until copper prices began to show signs of recovering less than two years ago. This reversal of fortune thereby set the stage for a renewed push to turn this huge deposit into a prolific moneymaker.

 

Teck Cominco is now poised to earn 50% of Petaquilla’s interest in the future mine and core project area by funding 100% of Petaquilla’s share of the mine development costs. This would guarantee Teck Cominco and Petaquilla an equal 26% interest in the mine. Meanwhile, Inmet would become the largest partner with its undiluted 48% interest. But it would also be responsible for its share of the anticipated $400 million mine development cost.

 

For the sake of clarification, this centerpiece project is known as the Minera Petaquilla S.A. Project. The remainder of the Petaquilla Project comprises all the adjacent mineral concession lands, known as the Petaquilla Project Lands, in which Petaquilla has 100% ownership. This expansive and geologically very fertile land package spans at least 795 square kilometers. Notably, this virtually unexplored territory shares much of the same geological characteristics as the Minera Petaquilla Project Lands mining camp (which also hosts the Minera Petaquilla S.A Project). Most significantly, none of Petaquilla’s wholly owned concessions have to date been exposed to sophisticated, district-scale exploration techniques. More on this later.

 

Again, it should be pointed out that Petaquilla has yet to delineate the full potential of the three gold-silver deposits in the Minera Petaquilla S.A. Project concession that surround the two main copper ore bodies. All of these smaller deposits make up for their lack of size with the potential for each of them to host stand-alone open-pittable precious metal resources. And this situation has been sweetened immeasurably as of last December with the signing of a Letter of Intent among the three partners that promises to hand over clear title for all of the precious metal deposits to Petaquilla. This “sweetheart deal” is contingent on Petaquilla successfully convincing the Panamanian federal government to safeguard the Minera Petaquilla S.A. Project’s future.

 

Petaquilla is very much in the driver’s seat in this regard, rather than Teck Cominco or Inmet (which is why the Company’s partners are so anxious to please). That is because Petaquilla has carefully nurtured an excellent rapport with all levels of the Panamanian government over the last decade. These relationships recently culminated in a face-to-face meeting with Panama’s President, Martin Torrijos, and the nation’s Vice Minister of Commerce, Manuel Jose Peredes.

 

The February 20 meeting was a resounding success. Peredes later officially announced that the Minera Petaquilla S.A. Project has the full support of the Panamanian federal government. “Petaquilla could be the starting point for Panama’s international presentation in the world mining market,” he declared. And the Panamanian government looks forward to seeing the project proceed on an expedited basis, he went on to say. “I just have one thing to add. Please begin working as soon as possible.”

 

Not only is Panama mindful of the shot in the arm that such a mine would give to this small nation’s economy. But a mine of such tremendous proportions would also put Panama on the global mining map. In turn, this scenario would likely attract the exploration dollars of many more mining companies, both large and small. As evidence of the Panamanian government’s efforts to ensure the future success of the Minera Petaquilla S.A. Project, a number of milestone incentives have already been implemented into law. They include the assurance of a stable land tenure, the vesting of ownership rights, a very favorable tax regime and numerous other mine development/production benefits.

 

Hence, this largely explains why Petaquilla’s partners are willing to relinquish mineral rights to all of the gold-silver deposits in the joint-ventured core project area. In return, Petaquilla must not only get the green light for the mine. It must also convince the Panamanians to endorse a multi-phase mine development plan that is on agreeable terms to the three partners.

 

Now that we’ve covered the “big picture”, let’s look at Petaquilla’s near-term strategy for offering its shareholders leveraged exposure to a buoyant bull market for bullion prices. The Company’s immediate focus in this regard is on the development of the Molejon epithermal gold deposit. This near-surface system benefits from a pre-feasibility study that was also undertaken on behalf of Teck Cominco several years ago.

 

Based on the 1995 report by SRK Consultants of Vancouver, BC, the Molejon deposit contains probable resources of 5,032,870 tonnes at a grade of 2.81 g/t for 454,803 ounces of gold and possible resources of 956,300 tonnes at a grade of 3.72 g/t for 114,386 ounces of gold. These resources, if reported by today’s standards (National Policy 43-101), would be defined as an inferred resource. The Company has reviewed the data from the report, and considers the estimate of the resource to be relevant and reliable.

 

Petaquilla’s management suggests that additional gold was also outlined at the time. Yet, this resource estimate was not corroborated with enough drilling to be included in the pre-feasibility study. Nonetheless, the Teck Cominco-funded three-dimensional geological model of the deposit constitutes an invaluable database. It will certainly assist Petaquilla in outlining the ore body’s known parameters, while also identifying the grade distribution. It should also help the Company zero-in on the zones that offer the highest concentrations of gold and silver.

 

Additionally, past exploration work has revealed a potential faulted extension to this deposit, which provides the Company with sufficient confidence that the known vein structures have excellent continuity. In fact, an ongoing 7,000-metre trenching program on the Molejon is providing very encouraging results (up to 40.03g/t over 1.2 meters). The trenching has exposed contiguous, in situ gold mineralization from within a meter of the surface in the Northwest zone.

 

A 5,000-metre infill and step-out summer drill program is expected to zero-in on new mineralized zones, while also upgrading the inferred resource of gold that was previously indicated by Teck Cominco. This shrewd strategy is expected to go a long way towards the Company’s stated goal of increasing the deposit’s mineral inventory to between one and one-and-a-half million ounces of gold. The added bonus of meaningful silver credits should also bolster the economics favouring a viable mining operation.

 

Roscoe Postle Associates Inc. was recently retained by the Company to perform an audit of a resource estimate and to complete a NI 43-101 Technical Report on the Molejon gold deposit. Subsequent to a successful drill program, Roscoe Postle is expected to conduct a full feasibility study later in the year and provide a definitive resource calculation. If successful, the Company could put the deposit into production by late 2006. Preliminary estimates suggest a production target of 100,000 ounces per year is a realistic scenario.

 

Elsewhere in the Minera Petaquilla S.A. Project mining camp, the Company has identified the Brazo, Faldalito, Botija-Abajo, Nada, Cuatro Crestas and Palmilla deposits. As mentioned earlier, none of these deposits have been fully delineated in dimension and all offer considerable scope for the discovery of new mineralized zones. In particular, preliminary indications suggest that the Botijo-Abajo deposit offers especially good potential for hosting a significant gold inventory. Moreover, this deposit is located a mere two kilometers northwest of the Molejon discovery. This is a major logistical advantage in the eventuality that both deposits become producers and are therefore able to share a mill located on the Molejon project site.

 

In short, this geologically fertile territory is ripe for the unearthing of any number of significant polymetallic finds. In fact, all of the known deposits are seated along a very favorable mineralized corridor or regional structural trend that has yet to be systematically explored. Importantly, it also traverses much of the length and breadth of the Company’s wholly owned mineral concessions outside of the core project area.  

 

Exploration can also be undertaken on a year-round basis throughout the entire region. This allows the Company ample opportunity to follow-up on a number of epithermal gold targets where there is an abundance of mineralized showings. Elsewhere throughout the Company’s contiguous (adjoining) land holdings, a past regional sampling program has identified numerous geochemical anomalies in river drainage systems that have never been tested.

 

All told, the Company’s exploration team has barely just “scratched the surface” across great virgin swathes of richly mineralized land. And the presence of near-surface mineralization suggests that modern exploration techniques such as airborne geophysical surveying and regional geochemical sampling will quickly and cost-efficiently identify the most geologically prospective targets.

 

On a corporate note, Petaquilla’s recently reorganized management and Company directors offer shareholders a combined 80 years of experience in the mining business, including the skilled management of well-known public traded mining juniors. Among the accomplished new management figures is Director Richard Fifer, an American-trained geologist, who is also a Panamanian citizen.

 

He initially secured the mineral claims for the main Minera Petaquilla S.A. Project concession area as far back as 1987 when he first found evidence of the region’s tremendous geological potential. His well-regarded geological acumen led to his past tenure as President and Chairman of CODEMIN (Panama's State Mining Company). He also served as Governor of the Province of Cocle (the jurisdiction is which the Minera Petaquilla S.A. Project is situated) from 1999 to 2002.

From a technical perspective, the Company has approximately 51.26 million shares outstanding (about 61.23 million fully diluted). However, up to 12% of this stock is held by management, thereby presenting plenty of incentive for the Company to aggressively pursue its near-term goal of becoming a small gold producer.

The same rationale applies to Petaquilla’s “big picture” aspirations to own a 26% interest in one of the world’s most prolific copper mines. This project constitutes a tangible asset that already provides a solid underpinning of the Company’s share price. Meanwhile, the realistic odd in favour of this landmark objective becoming a reality presents patient investors excellent potential for a headline-making home run. There also exists plenty of near-term “blue sky” upside in the form of the development of the Molejon gold-silver deposit and any of the other known deposits. Petaquilla’s systematic exploration of a largely untapped mineral belt also promises to yield other impressive finds.

In summary, this finely calibrated risk/reward formula is what makes Petaquilla a clear standout in the junior mining sector. Accordingly, SmallCapMedia believes that there are numerous compelling dynamics already converging to precipitate a sustained uptrend for the Company’s share price in 2005 and beyond. Hence, Petaquilla Minerals’ share price is not expected to remain so undervalued for much longer. SmallCapMedia will thus be following this exciting story very closely in the coming months.