Specifically, the Company benefits from a high-octane business model that is best illustrated by its sizeable stake in a billion-dollar-plus "elephant-sized" mine-in-the-making that is brimming with copper, gold, silver and molybdenum.

 

The Petaquilla Minera Project in mining-friendly Panama is documented to be one of the two or three largest undeveloped copper deposits in the world. Additionally, considerable enhanced value is also offered by the coexistence of gold, silver and molybdenum -- all of which are trading at or near historic highs.

 

Furthermore, Petaquilla (http://www.petaquilla.com/) is also within months of graduating to the much-envied status of a producing gold miner at its wholly-owned Molejon Deposit. Both projects, along with Petaquilla's other valuable mineral assets, are all situated in the same mineral-rich region of Panama. 

 

SmallCapMedia will focus exclusively on the Company's world-class Minera Petaquilla copper/gold/silver/molybdenum project in this article. A second in-depth corporate assessment will discuss the Company?s stand-alone Molejon Gold Deposit and other associated gold properties.

 

This is appropriate as Petaquilla's shareholders have recently voted in favour of spinning off the Company?s epic primary copper project into a new publicly traded company (which has already received conditional approval from the Toronto Stock Exchange). It will be known as Petaquilla Copper Ltd.

 

Meanwhile, the gold assets will remain in Petaquilla Minerals. In essence, this strategic initiative will reward patient investors with leveraged exposure to two separate, "company maker" business enterprises -- with each offering its own distinctly compelling risk/reward profiles.

 

A Copper Giant Emerges from the Jungle   

The "elephant sized" Minera Petaquilla copper/gold/silver/molybdenum project is the jewel in the crown of a richly mineralized 135-square-kilometer joint venture mining camp within the 795 square kilometer concession that hosts at least three partially explored polymetallic porphyry deposits.

 

They are collectively known as the Petaquilla Copper Project, in which Petaquilla Copper now owns a 52% interest of which Teck can earn half of this by paying all of Petaquilla Copper's costs (to be repaid by cash flow) through to production (meaning it is exempt from all the hefty costs involved in taking the developing mine into production).

 

These assets are all joint-ventured with the Company's two high profile, deep-pocketed partners, Teck Cominco and Inmet Mining. However, Petaquilla also now has clear title to a further three gold-silver deposits -- all wholly owned (see Part II of this Corporate Assessment for more on this).

 

Significantly, all of these discoveries are closely clustered together at the heart of an expansive swathe of land concessions in east-central Panama in Colon Province. Located no more than 15 kilometres from the Caribbean Sea, they are strategically situated within 100 kilometres of the Panama Canal. This is therefore a perfect position to ship concentrated ore at low costs to Europe, Asia and North America.

 

Petaquilla Minerals also wholly-owns exploration rights to over 795 square kilometers of concession lands that surround the main project area of which numerous mineralized zones have been identified. These properties, too, are in comparably close proximity to the Panama Canal.

 

To date, the copper project encompasses three multi-metals bulk tonnage ore bodies known as the Botija, Petaquilla and Valle Grande porphyry deposits. These deposits form the basis of the project's mineral inventory base.

 

To date, this totals 9.4 billion pounds of copper, 1.37 million ounces of gold, 24.1 million ounces of silver, and 131.1 million pounds of molybdenum. However, another key value driver is the fact that the Valle Grande discovery offers considerable untapped potential for further expansion.

 

Hence, the Valle Grande deposit will be extensively probed this year as part of a huge 250,000-metre drill program. One that is primarily designed to definitively determine the overall size, shape and average grades of the several clustered deposits involved. This incredibly thorough drill program is soon to get into high gear, and should take major strides towards expanding upon the Petaquilla Minera Project's already prolific mineralized footprint.

 

Historic Resource Estimates Establish this Giant's Eye-Catching Credentials

A 1998 independent feasibility study that involved no less than 120,000 metres of drilling and tens of millions of dollars in costs was financed in its entirety by Petaquilla?s senior partners. (More on this later).

 

This feasibility study -- conducted by AMEC Engineering -- constitutes an in-depth economic resource valuation, as well as a blueprint for a mine. And it proved to be well worth the approximately $60 million expenditure as it revealed 9.4 billion pounds of copper, 1.37 million ounces of gold, 131.1 million pounds of molybdenum, as well as 24.1 million ounces of silver. Most of these resources were concentrated at the Petaquilla and Botija porphyries.

 

However, this mineral resource estimate is not yet National Instrument (NI) 43-101 compliant. (These NI 43-101 resource classification guidelines constitute is a federal government recognized standard for a "mineral reserve.") 

 

Nonetheless, the mineral reserves in the feasibility study uses substantially the same terminology for "mineral reserve" as is required under NI 43-101 guidelines. In other words, the mention of measured and indicated resources in the 1998 feasibility study is materially equivalent to the highly reliable proven and probable reserves category in NI 43-101.

 

Notably, these historic resource numbers are being brought up-to-date using government-approved technical criteria and guidelines. The joint venture partners already took large strides towards this mandate by way of a 2006 verification drill program which has already confirmed much of the historical work performed that formed the basis of the 1998 feasibility study.

 

Furthermore, an exhaustive 250,000 drill campaign during 2007 is almost sure to pinpoint the exact location of virtually every ounce of gold and silver. Likewise for the massive quantities of copper, as well as another increasingly valuable industrial metal, namely molybdenum. This will allow the deposit to be upgraded on an expedited basis ? first to an inferred resource status and then to the ultimate proven and probable resources category.

 

Similarly, this drilling is expected to aggressively target the largely-undeveloped Valle Grande Deposit which holds the key to dramatically expanding (even doubling) the overall size of the Minera Petaquilla Project's mineralized footprint.

 

The drilling should also provide sufficient data for an upgraded financial model for the deposits that will more accurately reflect current buoyant metals prices and cost saving advances in mining technology.

 

This is very important as the 1998 study concluded that the project had a net present value of $510 million -- a figure that has surely more than doubled due to vastly higher metal prices in the last several years, compared to the depressed 1998 prices.

 

For instance, the feasibility study used for its measurements a lowly copper price of $1.10 per pound, a similarly compressed molybdenum price of US $3.50 per pound and a modest gold price of U.S. $375 an ounce.

 

By comparison, copper now trades at close to $3 a pound, while molybdenum is now soaring in the $25-$30 range and gold appears to be marching steadily towards the $700 mark.  

 

The 2007 drilling will be conducted under the supervision of Mr. Bruce Hiller, who was integral to the completion of the 1998 feasibility study.

 

Exceptional Mine Logistics Add More Lustre

The historic feasibility study also proposed a 23-year mine life, based on a 120,000 tonne per day throughput. The project also has an anticipated internal rate of return (IRR) of 24% (which is an impressive percentage), as well as a 30-year mine life and a three-year payback on capital costs.

 

This projected fast payback is due to the amenability of the near-surface bulk tonnage ore for open pit mining. This cost-effective dynamic is further sweetened by the forecast of a low stripping ratio of approximately 1:1 (amount of waste rock compared to ore).

 

In other words, all these favorable logistics suggest that the ore can be mined very inexpensively ? which more than compensates for its modest overall grade. Moreover, the huge tonnage involved presents the opportunity to realize impressive economies of scale, thereby significantly mitigating the future mine's capital costs even further.

 

This Deposit May yet Virtually Double In Size

The amount of gold, silver and molybdenum at the emerging Minera Petaquilla Project has the potential to more than double. And the copper resources are likely to see at least a 50% boost in size. So suggests the findings of an independent scoping study that was conducted by the well-regarded international engineering firm, Flour Daniel Wright.

 

Notably, this scoping study was undertaken during the same time frame as the feasibility study and using the same drill data and geologically model. However, it differs in one key regard; it includes the estimated mineral inventory for the approximately 300-million tonne Valle Grande deposit. This is in addition to the Botija and Petaquilla porphyries.

 

Flour Daniel Wright?s numbers weigh-in at an awe-inspiring 13.74 billion pounds of copper, 3.17 million ounces of gold, 42 million ounces of silver, and 287 million pounds of molybdenum. Again, these numbers are not NI 43-101 compliant and are to be regarded merely as reference points with a view to assessing the project?s "big picture" potential.

 

Strategic Alliances are the Key to the Launching of a World-Class Mine

As mentioned earlier, the Minera Petaquilla Copper Project involves a joint venture partnership with Teck Cominco and Inmet Mining Corporation. This alliance with one of the world's most powerful mining companies, as well as a highly successful mid-tier gold miner has helped propel Petaquilla from strength to strength.

 

By way of a little background, Teck Cominco is a Canada-based international mining heavyweight with nearly a century?s experience and enviable mining expertise. Inmet Mining is an emerging mid-sized producer that has earned a solid reputation since its inception in 1987 by primarily focusing on developing copper deposits.

 

Not only has this alliance afforded the project a high degree of credibility in the mining community, but it has also taken the burden of funding the project off Petaquilla's shoulders. For instance, in excess of U.S. $60 million has over the past decade been spent towards establishing its credentials as a prospectively viable mining operation.

 

In return for funding a comprehensive blueprint for a mine (consisting of past and future feasibility study calculations) and for funding more than half of all the costs involved in bringing the project into production, Teck Cominco is earning a 26% stake in the deposit?s prolific mineral assets.

 

It bears mentioning again that Petaquilla is entirely exempt from its share of the US $1.7 billion in further estimated overall costs involved in putting the mine into production. This is because Petaquilla enjoys the benefit of being the original landholder (dating back to the 1980s) on what is now fast becoming a world-class mining camp.

 

Consequently, Petaquilla was able to shrewdly negotiate agreements that ultimately offer shareholders major leveraged exposure to a billion-dollar-plus treasure trove -- and on a virtually risk-free basis. Petaquilla has therefore been able reallocate its sizeable war chest to the development of its robust gold asset base.

 

In a more recent development, one of China's largest smelters, the Jinchuan Group, has signed a letter of intent to also acquire a meaningful stake in the world-class Minera Petaquilla Project. This preliminarily agreement also implies that the Chinese may also contribute to the developmental costs of the mine.

 

In turn, such an alliance would ensure a steady supply of copper for Jinchuan over the next couple of decades. And it would likewise provide Petaquilla and its partners with a guarantee of strategic long-term supply contracts.  

 

Geopolitical Considerations

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.

 

Furthermore, Panama's federal government is particularly mindful of the shot in the arm that such a mine would give to this small nation's economy. Indeed, a mine of such prolific proportions would certainly 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 Copper Project, a number of milestone incentives have already been implemented into law. They include the assurance of stable land tenure, the vesting of ownership rights, a very favorable tax regime and numerous other mine development/production benefits.

 

Investment Summary

On a corporate note, Petaquilla's benefits from a strong, accomplished management team. It includes Company Director Richard Fifer, an American-trained geologist, who is also a Panamanian citizen. He initially secured the mineral claims for the core Minera Petaquilla concession lands 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 Project is situated) from 1999 to 2002.

 

From a technical perspective, the Company has 89,367,031 shares outstanding (108,193,329 shares on a fully diluted basis). Furthermore, Petaquilla owns no less than a 19% interest in Petaquilla Copper Ltd. (involving a holding of 22,189, 434 shares.

 

In summary, Petaquilla owns a significant piece of what is on-track to become a prolific moneymaking mine. Indeed, this project constitutes a tangible asset that already provides a solid underpinning of the Company's buoyant share price. 

 

Meanwhile, the strong odds in favour of the monetization of this giant asset within the next several years provides patient investors (soon to also become shareholders of Petaquilla Copper) excellent potential for a headline-making "home run". 

 

There also exists plenty of "blue sky" upside in the form of the near-term commercialization of the Molejon gold-silver deposit. Then there are at least two other prospectively economic stand-alone deposits that are also waiting for their turn to shine. Over the long-term, the systematic exploration of a largely untapped mineral belt also promises to yield other impressive finds for Petaquilla Minerals.

 

Accordingly, SmallCapMedia believes that there are numerous compelling dynamics already converging to precipitate a sustained uptrend for the Company's share price in 2007 -- which promises to be a banner year. 

 

Beyond this time frame, Petaquilla Minerals and its future sister company, Petaquilla Copper, are sure to become landmark success stories that promise to continue to reward shareholders handsomely.