By Steven Ralston, CFA

Last week, Petaquilla Minerals (Toronto:PTQ: TO) and (OTC BB:PTQMF) announced the latest step in the advancement of the Lomero-Poyatos gold project in Spain, specifically that the construction of a mine access ramp has begun.

The Lomero-Poyatos project is currently at the exploration stage with an inferred mineral resource estimate based primarily on historical drill-hole data of the 124 known drill holes. Completed by Behre Dolbear in May 2012, the revised NI 43-101-compliant report estimates an inferred resource of approximately 830,000 ounces Au and 17.3 ounces Ag (6.07 million tonnes at an average grade of 4.25 g/t Au at a 1.0 g/t Au cut-off and 88.74 g/t Ag) in an underground mining scenario at Lomero-Poyatos.

Thus far, Petaquilla has completed the first phase of twin drilling of historical holes, and the ramp will allow for additional twin drilling which also will contribute to upgrading the existing NI 43-101-compliant inferred resource estimate to the measured and indicated categories. In addition, the ramp will permit the infill drilling recommended by the NI

43-101 technical report, namely the drilling of holes at 50 meter intervals along N-S lines 100 meters apart.

Petaquilla Minerals acquired a 100% interest in the Lomero-Poyatos concessions through the acquisition of Iberian Resources in late August 2011; the titling process was completed in November 2012. Having secured the initial environmental permit to dewater the pit and the submerged galleries, along with the Andalusian Autonomous Government’s administrative authorization, Petaquilla has already completed the construction of a project office building and improved roads on the property.

Located in the Huelva Province of Spain, Lomero-Poyatos is approximately 85 kilometers northwest of Seville and 60 kilometers north of the major port of Huelva. The mining complex includes two open pits (one at Lomero and the other at Poyatos) and a six level underground mine with a central shaft between the open pits. Lomero-Poyatos was mined continuously from 1905 to 1982 solely as a sulphide (pyrite) mine. At least 2.6 million tonnes of massive sulphide ore was mined for pyrite content, which was smelted to manufacture sulfuric acid. Since then, several companies, including the pyrite smelter, have investigated Lomero-Poyatos as a possible gold-silver deposit and/or a base metal (copper-lead-zinc) deposit.

Lomero-Poyatos contains two independent ore bodies (Lomero and Poyatos) that form a single ore body at depth, over 800 meters in strike. Initially, each ore body was opened to the surface by small open pit mines. Later, in the twentieth century, a main shaft and an underground mine complex with at least six levels that intersected both ore bodies was developed. The underground mine has been flooded for about 20 years.mPetaquilla has prepared for dewatering the mine by conditioning a 300 meter deep tap through which the water can be removed.

We reaffirm our Outperform rating; however, we are adjusting our price target to reflect the recent dramatic and historic decline in gold and silver prices during the last two months. Since our valuation is based on a net present share value of attributable reserves and resources, our price target is impacted by the lower metal prices. Our adjusted target for the stock of Petaquilla Minerals is $1.20.

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