Petaquilla Minerals (PTQ) 20-F 2006 FY Annual report (foreign)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,  D.C.  20549

FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

        X      

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

 January 31, 2006

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ______________________

Commission file number:

0-26296

Petaquilla Minerals Ltd.

(Exact name of Registrant as specified in its charter)

Not applicable

(Translation of Registrant's name into English)

Province of British Columbia, Canada

(Jurisdiction of incorporation or organization)

Suite 1820, 701 West Georgia Street, Vancouver, British Columbia, Canada V7Y 1K8

(Address of principal executive offices)

Page 1 of 126 Pages
     

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Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
None	Not applicable

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Common Shares Without Par Value
_____________________________________________________________________________________
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None
_____________________________________________________________________________________
(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

70,246,303
_____________________________________________________________________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X  No _________

Indicate by check mark which financial statement item the Registrant has elected to follow.

Item 17 X  Item 18 _____

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ____  No ____  Not Applicable  X

The information set forth in this Annual Report on Form 20-F is as at January 31, 2006, unless an earlier or later date is indicated.

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Financial information is presented in accordance with accounting principles generally accepted in Canada.  Measurement differences between accounting principles generally accepted in Canada and in the United States, as applicable to Petaquilla Minerals Ltd., are set forth in Item 5 of this Annual Report and in Note 19 to the accompanying Financial Statements of Petaquilla Minerals Ltd.

Statements in this Annual Report regarding expected completion dates of feasibility studies, anticipated commencement dates of mining or metal production operations, projected quantities of future metal production and anticipated production rates, operating efficiencies, costs and expenditures are forward-looking statements.  Actual results could differ materially depending upon the availability of materials, equipment, required permits or approvals and financing, the occurrence of unusual weather or operating conditions, the accuracy of reserve estimates, lower than expected ore grades or the failure of equipment or processes to operate in accordance with specifications.  See "Risk Factors" for other factors that may affect our future financial performance.

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SECURITIES AND EXCHANGE COMMISSION

FORM 20-F

TABLE OF CONTENTS

Page No.

	GLOSSARY OF MINING TERMS	8
PART I		10
ITEM 1	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS	10
ITEM 2	OFFER STATISTICS AND EXPECTED TIMETABLE	10
ITEM 3	KEY INFORMATION	10
A.	Selected Financial Data	10
B.	Capitalization and Indebtedness	12
C.	Reasons For The Offer and Use of Proceeds	12
D.	Risk Factors	12
	Exploration and Development Risks	12
	Estimates of Reserves, Mineral Deposits and Production Costs	13
	Risks of Development, Construction and Mining Operations	13
	Expanded Panama Canal Watershed Could Affect Development	14
	Title Matters	14
	Conflicts of Interest	14
	Currency Fluctuations	14
	Additional Funding Requirements	14
	Requirements of Ley Petaquilla	15
	History of Net Losses; Accumulated Deficit; Lack of Revenue From Operations	17
	Limited Experience with Development-Stage Mining Operations	18
	Stock Subject to Penny Stock Rules	18
	Competition	18
	Mineral Prices	18
	Foreign Countries and Regulatory Requirements	19
	Environmental and Other Regulatory Requirements	19
	Panama Political Risks	20
	Dividends	20
	Our Officers and Directors Resident Outside U.S;. Potential Unenforceability of Civil Liabilities and Judgments	20
	If We are Unable to Successfully Develop and Subsequently Generate Sufficient Cash Flow from Our Properties, We Could be Treated as a Passive Foreign Investment Company for U.S. Tax Purposes, Possibly Resulting in Additional Taxes to Our U.S. Stockholders and Less Liquidity for the Stock	20

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ITEM 4	INFORMATION ON OUR COMPANY	21
A.	History and Development of Our Company	21
	Acquisition of the Petaquilla Property, Panama	21
	Financing Agreement with Teck Corporation	21
	Molejon Property - Panama	23
	Mineral Properties - Other	23
	Directors and Officers of Our Company	23
	Principal Capital Expenditures/Divestitures Over Last Three Fiscal Years	24
	Current and Planned Capital Expenditures/Divestitures	24
	Public Takeover Offers	24
B.	Business Overview	24
C.	Organizational Structure	25
D.	Property, Plant and Equipment	27
	Petaquilla Property, Panama	27
	Introduction	27
	Calendar 2006 Ley Petaquilla Concession Copper Deposit Plans	28
	Location, Access & Physiography	29
	Plant and Equipment	30
	Title	30
	Exploration History	32
	Exploration - Results Obtained By Us or on Our Behalf	32
	Regional and Local Geology	41
	Mineralization	42
	Preliminary Feasibility Study	43
	Production Scoping Study	46
	Final Feasibility Study	47
	Status of Project Financing	48
	Doing Business in Panama	48
ITEM 5	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	50
A.	Operating Results	50
	Fiscal Year Ended January 31, 2006, Compared to Fiscal Year Ended January 31, 2005	51
	Fiscal Year Ended January 31, 2005, Compared to Fiscal Year Ended January 31, 2004	51
	Fiscal Year Ended January 31, 2004, Compared to Fiscal Year Ended January 31, 2003	52
B.	Liquidity and Capital Resources	52
	January 31, 2006, Compared to January 31, 2005	53
	January 31, 2005, Compared to January 31, 2004	54
	January 31, 2004, Compared to January 31, 2003	54
	Material Differences between Canadian and U.S. Generally Accepted Accounting Principles	55
	Outlook	55
C.	Research and Development, Patents and Licenses, etc.	55
D.	Trend Information	56
E.	Off-Balance Sheet Arrangements	56
F.	Disclosure of Contractual Obligations	56
		56

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ITEM 6	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	56
A.	Directors and Senior Management	56
B.	Compensation	57
	Cash and Non-Cash Compensation - Executive Officers and Directors	57
	Option Grants in Last Fiscal Year	58
	Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values	59
	Defined Benefit or Actuarial Plan Disclosure	59
	Termination of Employment, Change in Responsibilities and Employment Contracts	59
	Directors	60
C.	Board Practices	61
D.	Employees	62
	Consultants	62
E.	Share Ownership	63
ITEM 7	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	64
A.	Major Shareholders	64
B.	Related Party Transactions	65
C.	Interests of Experts and Counsel	66
ITEM 8	FINANCIAL INFORMATION	66
A.	Consolidated Statements and Other Financial Information	66
B.	Significant Changes	66
ITEM 9	THE OFFER AND LISTING	66
A.	Offer and Listing Details	66
B.	Plan of Distribution	68
C.	Markets	68
D.	Selling Shareholders	68
E.	Dilution	68
F.	Expenses of the Issue	68
ITEM 10	ADDITIONAL INFORMATION	68
A.	Share Capital	68
B.	Memorandum and Articles of Association	69
C.	Material Contracts	71
D.	Exchange Controls	71
E.	Taxation	73
	Material Canadian Federal Income Tax Consequences	73
	Dividends	73
	Capital Gains	73
	Material United States Federal Income Tax Consequences	74
	U.S. Holders	75
	Distributions on Common Shares of the Company	75
	Foreign Tax Credit	76
	Information Reporting and Backup Withholding	76
	Disposition of Common Shares of the Company	76
	Currency Exchange Gains or Losses	77

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	Other Considerations	77
	Foreign Personal Holding Company	77
	Foreign Investment Company	77
	Passive Foreign Investment Company	78
	Controlled Foreign Corporation	79
F.	Dividends and Paying Agents	79
G.	Statement by Experts	79
H.	Documents on Display	79
I.	Subsidiary Information	80
ITEM 11	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	80
ITEM 12	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	80
PART II		80
ITEM 13	DEFAULTS, DIVIDEND ARREARS AND DELINQUENCIES	80
ITEM 14	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	80
ITEM 15	CONTROLS AND PROCEDURES	81
ITEM 16	RESERVED	81
A.	Audit Committee Financial Expert	81
B.	Code of Ethics	81
C.	Principal Accountant Fees and Services	82
D.	Exemptions From the Listing Standards for Audit Committees	83
E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	83
PART III		83
ITEM 17	FINANCIAL STATEMENTS	83
ITEM 18	FINANCIAL STATEMENTS	83
ITEM 19	EXHIBITS	86
	SIGNATURES	86

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GLOSSARY OF MINING TERMS

The following is a glossary of some of the terms used in the mining industry and referenced herein:

Commission - United States Securities and Exchange Commission.

copper equivalent - a method of presenting combined copper and gold concentrations or weights for comparison purposes.  Commonly involves expressing gold as its proportionate value in copper based on the relative value of the two metals.  When copper equivalent is used to express metal sold, the calculation is based on actual prices received.  When grades are expressed in copper equivalent, the relative recoveries of the two metals are also taken into account.

cutoff grade - deemed grade of mineralization, established by reference to economic factors, above which material is included in mineral deposit calculations and below which material is considered waste.  May be either an external cutoff grade, which refers to the grade of mineralization used to control the external or design limits of an open pit based upon the expected economic parameters of the operation, or an internal cutoff grade, which refers to the minimum grade required for blocks of mineralization present within the confines of an open pit to be included in mineral deposit estimates.

diamond drill - a machine designed to rotate under pressure an annular diamond-studded cutting tool to produce a more or less continuous solid sample (drill core) of the material that is drilled.

epithermal - a term applied to those mineral deposits formed in and along fissures or other openings in rocks by deposition at shallow depths from ascending hot solutions.

indicated reserves orprobable reserves - reserves for which quantity and grade and/or quality are computed from information similar to that used for measured or proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced.  The degree of assurance, although lower than that for measured reserves, is high enough to assume continuity between points of observation.

junior resource company - as used herein means a company whose mineral resource properties are in the exploration phase only and which is wholly or substantially dependent on equity financing or joint ventures to fund its ongoing activities.

measured reserves orproven reserves - reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geological character is so well defined that size, shape, depth and mineral content of reserves are well established.

mineral deposit, deposit ormineralized material - a mineralized body which has been physically delineated by sufficient drilling, trenching and/or underground work, and found to contain a sufficient average grade of metal or metals to warrant further exploration and/or development expenditures.  Such a deposit does not qualify under Commission standards as a commercially mineable ore body or as containing ore reserves, until final legal, technical and economic factors have been resolved.

molybdenite - the mineral MoS₂, or molybdenum sulphide, which is the principal ore of molybdenum.

open pit mining - the process of mining an ore body from the surface in progressively deeper steps.  Sufficient waste rock adjacent to the ore body is removed to maintain mining access and to maintain the stability of the resulting pit.

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ore - a natural aggregate of one or more minerals which, at a specified time and place, may be mined and sold at a profit, or from which some part may be profitably separated.

ounces - troy ounces.

oz/tonne - troy ounces per metric ton.

ppb - parts per billion.

ppm - parts per million.

porphyry deposit - a disseminated mineral deposit often closely associated with porphyritic intrusive rocks.

recoverable ounces andrecoverable pounds - means the amount of metal produced from diluted mineable reserves after taking into account milling losses and based, in the case of the Petaquilla Property, on projected average recoveries of (i) 90% for copper, 65% for gold and 72% for molybdenite, in the case of production estimates by Kilborn Engineering (Pacific) Ltd. and (ii) 90% for copper, 60% for gold from the Molejon deposit, 65% for gold from the other deposits and 65% for molybdenite, in the case of production estimates by Fluor Daniel Wright Ltd. and (iii) 90% for copper, 58% for gold and 62% for molybdenite, in the case of production estimates by H.A. Simons Ltd.

reserve - that part of a mineral deposit which can be economically and legally extracted or produced at the time of the reserve determination.  Reserves are customarily stated in terms of "ore" when dealing with metalliferous minerals.

stockwork - a rock mass so interpenetrated by small veins of ore that the whole must be mined together.  Stockworks are distinguished from tabular or sheet deposits, i.e. veins or beds, which have a small thickness in comparison with their extension in the main plane of the deposit.

strike length - the longest horizontal dimensions of a body or zone of mineralization.

stripping ratio - the ratio of waste material to ore that is experienced in mining an ore body.

tonne - metric ton (2,204 pounds).

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PART I

This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors", that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different f rom any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

As used in this annual report, the terms "we", "us", "our", and "PTQ" mean Petaquilla Minerals Ltd. and its subsidiaries, unless otherwise indicated.

Unless otherwise indicated, all dollar amounts referred to herein are in Canadian dollars.

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

This Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

This Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.

ITEM 3.  KEY INFORMATION

A.  Selected Financial Data

The following tables summarize our selected financial data (stated in Canadian dollars) prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP").  The information in the tables was extracted from the more detailed financial statements and related notes included with this filing and should be read in conjunction with these financial statements and with the information appearing under the heading "Item 5 – Operating and Financial Review and Prospects".  Note 19 of our financial statements included with this filing sets forth the measurement differences were such information to be presented in conformity with United States generally accepted accounting principles ("U.S. GAAP").  Results for the periods ended January 31, 2006, are not necessarily indicative of results for future periods.

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INFORMATION IN ACCORDANCE WITH CANADIAN GAAP:

			Year Ended January 31
			2006	2005	2004	2003	2002
(a)	Total revenue		$0	$0	$0	$0	$0
(b)	Earnings (loss) before extraordinary items(1)
		Total	($2,567,758)	($1,798,273)	($811,190)	($214,102)	($32,747,839)
		Per Share(1)	($0.05)	($0.04)	($0.02)	($0.01)	($1.03)
(c)	Total assets		$12,807,172	$1,989,474	$2,670,561	$1,196,640	$1,302,518
(d)	Total long-term debt		$0	$0	$0	$0	$0
(e)	Total shareholder equity (deficiency)		$12,256,076	$1,886,423	$2,543,620	$1,068,394	$1,234,206
(f)	Cash dividends declared per share		n/a	n/a	n/a	n/a	n/a
(g)	Net earnings (loss) for the period
		Total	($2,567,758)	($1,989,474)	($811,190)	($214,102)	($32,747,839)
		Per Share(1)	($0.05)	($0.04)	($0.02)	($0.01)	($1.03)

(1)  The effect of potential share issuances pursuant to the exercise of options and warrants would be anti-dilutive and, therefore, basic and diluted losses per share are the same.

INFORMATION IN ACCORDANCE WITH U.S. GAAP:

			Year Ended January 31
			2006	2005	2004	2003	2002
(a)	Total revenue		$0	$0	$0	$0	$0
(b)	Earnings (loss) before extraordinary items
		Total	($4,957,527)	($1,798,273)	($811,190)	($214,102)	($32,875,639)
		Per Share¹	($0.09)	($0.04)	($0.02)	($0.01)	($1.04)
(c)	Total assets		$10,432,778	$2,026,893	$2,715,567	$1,196,640	$1,335,237
(d)	Total long-term debt		$0	$0	$0	$0	$0
(e)	Total shareholder equity (deficiency)		$9,881,682	$1,923,842	$2,588,626	$1,068,394	$1,266,925
(e)	Cash dividends declared per share		n/a	n/a	n/a	n/a	n/a
(f)	Net earnings (loss) for the period
		Total	($4,979,571)	($2,026,893)	($766,184)	$(214,102)	($32,875,639)
		Per Share¹	($0.09)	($0.04)	($0.02)	($0.01)	($1.04)

(1)  The effect of potential share issuances pursuant to the exercise of options and warrants would be anti-dilutive and, therefore, basic and diluted losses are the same.

We have not declared or paid any dividends in any of our last five financial years.

On January 31, 2006, the exchange rate, based on the noon buying rate published by The Bank of Canada, for the conversion of Canadian dollars into United States dollars (the "Noon Rate of Exchange") was $1.1439.

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The following table sets out the high and low exchange rates for each of the last six months.

	2006				2005
	April	March	February	January	December	November
High for period	1.1719	1.1724	1.1578	1.1726	1.1734	1.1961
Low for period	1.1203	1.1322	1.1380	1.1439	1.1507	1.1657

The following table sets out the average exchange rates for the five most recent financial years calculated by using the average of the Noon Rate of Exchange on the last day of each month during the period.

Year Ended January 31
	2006	2005	2004	2003	2002
Average for the period	1.2006	1.2906	1.3746	1.5646	1.5590

B.  Capitalization and Indebtedness

This Form 20F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.

C.  Reasons For The Offer and Use of Proceeds

This Form 20-F is being filed as an annual report under the Exchange Act and, as such, there is no requirement to provide any information under this item.

D.  Risk Factors

The following is a brief discussion of those distinctive or special characteristics of our operations and industry which may have a material impact on, or constitute risk factors in respect of, our future financial performance.

Exploration and Development Risks

We are engaged in the acquisition, exploration, exploration management, development and sale of mineral properties, with the primary aim of developing them to a stage where they can be exploited at a profit.  Our property interests are in the exploration stage only, with the exception of the Petaquilla Property, and are without a known body of commercial ore.  Accordingly, there is little likelihood that we will realize any profits in the short to medium term.  Any profitability in the future from our business will be dependent upon locating mineral reserves, which itself is subject to numerous risk factors.

The business of exploring for minerals and mining involves a high degree of risk.  Few properties that are explored are ultimately developed into producing mines.  In developing our mineral deposits, we will be subjected to an array of complex economic factors and accordingly there is no assurance that a positive feasibility study or any projected results contained in a feasibility study of a mineral deposit will be attained.

Technical considerations, delays in obtaining governmental approvals, inability to obtain financing or other factors could cause delays in developing properties.  Such delays could materially adversely affect our financial performance.

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The business of mining is subject to a variety of risks such as cave-ins and other accidents, flooding, environmental hazards, the discharge of toxic chemicals, and other hazards.  Such occurrences may delay production, increase production costs or result in liability.  We will obtain insurance in amounts that we consider to be adequate to protect ourselves against certain risks of mining and processing.  However, we may become subject to liability for hazards against which we cannot insure ourselves or which we may elect not to insure against because of premium costs or other reasons.  In particular, we are not insured for environmental liability or earthquake damage.

In order to develop the Petaquilla Property, located in Panama, it will be necessary to build the necessary infrastructure facilities, including electricity, transportation, etc., the costs of which could be substantial.  During the fiscal year ended January 31, 2002, we recorded a write-down of $32,628,433 in respect of our Petaquilla Property as a result of depressed copper prices making development of the Petaquilla Property uneconomical at that time.  Recent significant increases in metal commodity prices may not be sustainable.  They may not be reliable as indicators of future consistent realizable values, should any of PTQ’s mineral deposits reach commercial production.

Estimates of Reserves, Mineral Deposits and Production Costs

Although the ore reserve and mineral deposit figures included herein, most of which, as noted, are not compliant with National Instrument Policy 43-101, have been carefully prepared by us, or, in some instances have been prepared, reviewed or verified by independent mining experts, these amounts are estimates only and no assurance can be given that any particular level of recovery of minerals from ore reserves will in fact be realized or that an identified mineral deposit will ever qualify as a commercially mineable (or viable) ore body which can be legally and economically exploited.  Further development, drilling and other engineering analysis is required in order to have any of PTQ’s reserves classified as proven resources.  Estimates of reserves, mineral deposits and production costs can also be affected by such factors as permitting regulations and requirements, weath er, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions.  In addition, the grade of ore ultimately mined may differ from that indicated by drilling results.  Short term factors relating to ore reserves, such as the need for orderly development of ore bodies or the processing of new or different grades, may also have an adverse effect on mining operations and on the results of operations.  There can be no assurance that minerals recovered in small scale laboratory tests will be duplicated in large scale tests under on-site conditions.  Material changes in ore reserves, grades, stripping ratios or recovery rates may affect the economic viability of projects.  Ore reserves are reported as general indicators of mine life.  Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations.

Risks of Development, Construction and Mining Operations

Our ability to meet timing and cost estimates for properties cannot be assured.  Technical considerations, delays in obtaining governmental approvals, inability to obtain financing or other factors could cause delays in developing properties.  Such delays could materially adversely affect our financial performance.

The business of mining is subject to a variety of risks such as cave-ins and other accidents, flooding, environmental hazards, the discharge of toxic chemicals and other hazards.  Such occurrences may delay production, increase production costs or result in liability.  We will obtain insurance in amounts that we consider to be adequate to protect ourselves against certain risks of mining and processing.  However, we may become subject to liability for hazards against which we cannot insure ourselves or which we may elect not to insure against because of premium costs or other reasons.  In particular, we are not insured for environmental liability or earthquake damage.

In order to develop the Petaquilla Property, it will be necessary to build the necessary infrastructure facilities, including, electricity, transportation, etc., the costs of which could be substantial.

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Expanded Panama Canal Watershed Could Affect Development

On August 30, 1999, the Government of Panama passed legislation which significantly expands the size of the Panama Canal Watershed in general and, in particular, establishes an overlap of 2,885 of the 13,600 hectares comprising the Petaquilla concession.  It is possible that the future construction of dams within the watershed area could negatively affect the development of the Petaquilla Property.  In late April 2006, the Government of Panama indicated they will introduce legislation to repeal their earlier law on expanding the size of the Panama Canal Watershed, which includes the aforementioned overlap.  There is no guarantee such repeal legislation will ultimately be passed by the Government of Panama.

Title Matters

While we have diligently investigated title to all mineral exploration concessions and, to the best of our knowledge, title to such properties is in good standing, this should not be construed as a guarantee of title.

Conflicts of Interest

Certain of our directors are directors of other reporting companies or have significant shareholdings in other mineral resource companies and, to the extent that such other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation.  In the event that such a conflict of interest arises at a meeting of our directors, a director who has such a conflict will abstain from voting for or against the approval of such a participation or such terms.  In appropriate cases we will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict.  In accordance with the laws of the Province of British Columbia, our directors are required to act honestly, in good faith and in the bes t interests of PTQ.  In determining whether or not we will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the potential benefits to PTQ, the degree of risk to which we may be exposed and our financial position at that time.  Other than as indicated, we have no other procedures or mechanisms to deal with conflicts of interest.

Currency Fluctuations

We maintain our accounts in Canadian dollars.  Our operations in Panama may make us subject to foreign currency fluctuations.  Panama's currency, the Balboa, is at parity with the U.S. dollar.  Exchange transactions are allowed in U.S. dollars and, as a result, foreign currency fluctuations will only be material for us to the extent that fluctuations between the Canadian and U.S. dollar are material.  We do not at present plan, nor do we plan in the future, to engage in foreign currency transactions to hedge any exchange rate risks.

Additional Funding Requirements

We have not generated cash flow from operations in the past and cash flow is not expected in the next few years to satisfy our operational requirements and cash commitments.  In the past, we have relied on sales of equity securities to meet most of our cash requirements, together with project management fees, property payments and sales or joint ventures of properties.  There can be no assurance that funding from these sources will be sufficient in the future to satisfy our operational requirements and cash commitments.

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We do not presently have sufficient financial resources to undertake all of our planned exploration and development programs.  The development of our properties depends upon our ability to obtain financing through any or all of the joint venturing of projects, debt financing, equity financing or other means. There is no assurance that we will be successful in obtaining the required financing.  Failure to obtain additional financing on a timely basis could cause us to forfeit our interest in our properties and reduce or terminate our operations on such properties.  Accordingly, in their report on the consolidated financial statements for the period ended January 31, 2006, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern.  Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

In particular, although we have entered into an agreement whereby Teck Cominco Limited can earn 50% of our interest in the Ley Petaquilla Property, by funding the feasibility study and our capital costs, there is no assurance that Teck Cominco Limited will elect to participate or to continue to participate in such property, in which event we will be required to finance all future exploration and development, or seek another partner.  Pursuant to our agreement with Teck Cominco Limited, Teck Cominco Limited can, at any time prior to a property reaching "commercial" production, elect to abandon and surrender its interest in any property.

Requirements of Ley Petaquilla

Our operations in Panama are governed primarily by Law No. 9 of the Legislative Assembly of Panama (the "Ley Petaquilla"), a project-specific piece of legislation enacted in February 1997 to deal with the orderly development of the Petaquilla Property.  The Ley Petaquilla granted a mineral exploration and exploitation concession to Minera Petaquilla, S.A.  Under the Ley Petaquilla, Minera Petaquilla, S.A. was required to begin mine development by May 2001; however, Minera Petaquilla, S.A. can defer commencing development operations for one month for every month that the price of copper remains below $1.155 per pound for up to a further five years (i.e. until May 2006 at the latest).  The Ley Petaquilla also requires Minera Petaquilla, S.A. to make a minimum investment of US $400 million in the development of the Petaquilla Property.  During the fiscal year e nded January 31, 2002, we recorded a write-down of $32,628,433 in respect of our Petaquilla Property as a result of depressed copper prices making development of the Petaquilla Property uneconomical at that time.

PTQ, through our wholly-owned subsidiary Georecursos, owns 52% of Minera Petaquilla. Minnova (Panama) Inc. (“Minnova”), a wholly-owned subsidiary of Inmet Mining Corporation (“Inmet”), owns the remaining 48% of Minera Petaquilla, a company formed during 1997 to own the Ley Petaquilla mineral concession in Panama. Pursuant to the contract law under which the Petaquilla concession was granted by the Government of the Republic of Panama, PTQ has delivered a phased Mine Development Plan to the Government of Panama.  This phased Mine Development Plan was approved in September 2005. Refer also to “Item 4 – Information on our Company – A. History and Development of our Company”. This approval resulted in the extension of the land tenure for an initial 20 year period commencing September 2005, subject to PTQ meeting certain other development and operational conditions on an ongoing basis. Terms of the land tenure have two additional 20 year terms that are also subject to PTQ meeting certain other ongoing development and operational conditions.

Teck Cominco Limited (“Teck”) has an option to acquire 50% of PTQ’s interest in Minera Petaquilla, which would result in Teck having a 26% interest in Minera Petaquilla. In order for Teck to acquire the 26% interest, it is required to:

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i)

Fund 52% of the continuing exploration expenditures, as defined, of Minera Petaquilla, with Minnova to fund its 48% share, until such time as Teck either acquires its interest or its interest is terminated.

ii)

Fund 100% of and complete a final feasibility study, as defined, for the property and deliver such study by January 21, 1998 (completed).

iii)  Arrange project financing for Minera Petaquilla for completion of development of the Ley Petaquilla property and, if necessary, fund 52% (Minnova to fund 48%) of any shortfall in the total project funding requirement in excess of arranged project financing.

Teck is committed to annually make a final commitment respecting development of the concession and to deliver an update to the feasibility study of the concession. The requirement to make a final commitment or give notice of unfavorable economic conditions within 90 days of delivery of the final feasibility study applies to all subsequent annual anniversaries. Failure to make such a commitment or deliver a notice shall result in the termination of Teck’s right to acquire an interest in Minera Petaquilla.

In April 2005, PTQ and Inmet agreed to waive for one year Teck’s obligation to make a final commitment respecting development of the concession and to deliver an updated feasibility study. This waiver does not affect Teck’s obligation to make a final commitment respecting development of the concession and to deliver an updated feasibility study in 2006.

Upon Teck making a final commitment, Minnova is required to deliver a final commitment to participate in the development of the project or it will be required to dispose of its interest in Minera Petaquilla. Minnova is then required to either offer to sell its interest in the concession or accept an 8% net profit interest, as defined, in the project. The offer to sell its interest shall be made first to PTQ and then to Teck at a price to be determined by Minnova. In the event that neither PTQ nor Teck chooses to acquire Minnova’s interest, Minnova shall be entitled to seek an independent purchaser of its interest on terms no more favorable than those offered to PTQ and Teck.

Either PTQ or Minnova (the Proposer) may at any time give notice to the other parties of its intention to proceed with development of the concession in accordance with the most recently delivered Teck feasibility study. Upon receipt of such notice, Teck has 50 days in which to make a final commitment to develop the project. The other party, PTQ or Minnova (the Recipient), has 60 days from the receipt of such notice to commit to develop the project.

If the Recipient has not agreed to develop the project, the Proposer may, within 70 days of the proposal, elect to exercise the “Shotgun Offer,” as defined, and either sell its interest or acquire the Recipient’s interest in Minera Petaquilla, for cash, based on the value of Minera Petaquilla as determined in accordance with the provisions of the agreement. The Recipient has 15 days from receipt of the Shotgun Offer to agree either to sell its interest or to acquire the Proposer’s interest as applicable, and in the event that the Recipient does not take action within the 15-day period, it will thereafter be deemed to have agreed to sell its interest in Minera Petaquilla.

If Minnova sells its interest, pursuant to the Shotgun Offer, PTQ shall pay Minnova 48% of the value of Minera Petaquilla.

If PTQ sells its interest, pursuant to the Shotgun Offer, it shall receive 29% of the value of Minera Petaquilla on condition that, in the event that Teck’s interest in the concession is terminated, PTQ shall receive an additional 23% of the value of Minera Petaquilla.

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If Teck’s interest in the concession is not terminated and PTQ sells its interest, pursuant to the Shotgun Offer, PTQ shall not be entitled to receive any further amount, in excess of the 29% of the value received on account of the sale of its interest in Minera Petaquilla.

Upon exercise of the Shotgun Offer, Teck has 130 days in which to deliver a final commitment for development of the concession or its interest shall be terminated.

Teck’s interest in the concession shall terminate on the earlier of:

i)

Teck electing to terminate its interest provided it has delivered its final feasibility study, or

ii)

Teck’s failure to deliver a final commitment requesting development of the concession and to deliver an updated feasibility study.

In the event that Teck’s interest is terminated, Teck shall retain a net profit royalty interest in the project at a rate to be determined.

The Government of Panama passed legislation which significantly expands the size of the Panama Canal Watershed in general and, in particular, establishes an overlap of part of the Petaquilla concession.  It is possible that future construction of dams within the watershed area could negatively affect the development of the Ley Petaquilla property.  In late April 2006, the Government of Panama indicated they will introduce legislation to repeal their earlier law on expanding the size of the Panama Canal Watershed, which includes the aforementioned overlap.  There is no guarantee such repeal legislation will ultimately be passed by the Government of Panama.

Molejon Property – Panama

In June 2005, the shareholders of Minera Petaquilla agreed to separate the gold deposit and other precious metal mineral deposits that might be developed within the Ley Petaquilla mineral concession from the copper mineral deposits within the Ley Petaquilla mineral concession. The agreement provides for PTQ, through Petaquilla Gold, S.A., to own a 100% interest in the Molejon gold deposit, as well as all other gold and precious metal mineral deposits that might be developed within the Ley Petaquilla mineral concession, subject to a graduated 1% - 5% Net Smelter Return, based on the future gold price at the time of production, payable to Teck and Minova as to 35.135% and 64.865% respectively.

Approval of the overall phased Ley Petaquilla Mine Development Plan was obtained in September 2005. The Molejon gold mineral deposit is part of the Ley Petaquilla concession lands. Transfer of title to PTQ of the Molejon gold mineral deposit, as well as the other rights as described above, is underway.

We intend to focus the first phase of the mine development plan on the Molejon gold deposit.  We have begun further exploration and development work with the view of moving toward completion of a feasibility study on the Molejon gold deposit.  In addition, we intend to perform further exploration on other identified gold targets within the Ley Petaquilla concession, and those within our wholly-owned properties surrounding the Ley Petaquilla concession.  Refer to “Item 4 - Information on Our Company - D. Property, Plant and Equipment” for further details on planned development activities.

History of Net Losses; Accumulated Deficit; Lack of Revenue From Operations

We have incurred net losses to date.  Our deficit as of January 31, 2006, was $51,558,632.  We have not yet had any revenue from the exploration activities on our properties.  The Molejon Property is our first property development activity. Even if we undertake development activity on any of our properties, including the Molejon Property, we may continue to incur losses beyond the period of commencement of such activity.  There is no certainty that we will produce revenue, operate profitably or provide a return on investment in the future.  During the fiscal year ended January 31, 2002, we recorded a write-down of $32,628,433 in respect of our Petaquilla Property as a result of depressed copper prices making development of the Petaquilla Property uneconomical at that time.  Recent significant increases in metal commodity prices may not be sustai nable.  They may not be reliable as indicators of future consistent realizable values, should any of PTQ’s mineral deposits reach commercial production.

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Limited Experience with Development-Stage Mining Operations

We have limited experience in placing resource properties into production and our ability to do so will be dependent upon using the services of appropriately experienced personnel or entering into agreements with other major resource companies that can provide such expertise.  There can be no assurance that we will have available to us the necessary expertise when and if we place our resource properties into production.  There also exists significant risks on being successful at recruiting experienced employees or contractors to allow us to move forward in pursuing development-stage mining operations.

Stock Subject to Penny Stock Rules

Our capital stock would be classified as "penny stock" as defined in Rule 15g-9 promulgated under the Securities Exchange Act of 1934 (the "1934 Act").  In response to perceived abuse in the penny stock market generally, the 1934 Act was amended in 1990 to add new requirements in connection with penny stocks.  In connection with effecting any transaction in a penny stock, a broker or dealer must give the customer a written risk disclosure document that (a) describes the nature and level of risk in the market for penny stocks in both public offerings and secondary trading, (b) describes the broker's or dealer's duties to the customer and the rights and remedies available to such customer with respect to violations of such duties, (c) describes the dealer market, including "bid" and "ask" prices for penny stock and the significance of the s pread between the bid and ask prices, (d) contains a toll-free telephone number for inquiries on disciplinary histories of brokers and dealers, and (e) defines significant terms used in the disclosure document or the conduct of trading in penny stocks.  In addition, the broker-dealer must provide to a penny stock customer a written monthly account statement that discloses the identity and number of shares of each penny stock held in the customer's account, and the estimated market value of such shares.  The extensive disclosure and other broker-dealer compliance related to penny stocks may result in reducing the level of trading activity in the secondary market for such stocks, thus limiting the ability of the holder to sell such stock.

Competition

Significant and increasing competition exists for the limited number of mineral property acquisition opportunities available.  As a result of this competition, some of which is with large established mining companies with substantial capabilities and greater financial and technical resources than us, we may be unable to acquire additional attractive mineral properties on terms we consider acceptable.  Accordingly, there can be no assurance that our exploration and acquisition programs will yield any new reserves or result in any commercial mining operation.

Mineral Prices

The mining industry in general is intensely competitive and there is no assurance that, even if commercial quantities of minerals are discovered, a profitable market will exist for the sale of same. Factors beyond our control may affect the marketability of any substances discovered.  The prices of gold and copper have experienced volatile and significant price movements over short periods of time and are affected by numerous factors beyond our control, including international economic and political trends, expectations of inflation, currency exchange fluctuations (specifically, the U.S. dollar relative to other currencies), interest rates and global or regional consumption patterns (such as the development of gold coin programs), speculative activities and increased production due to improved mining and production methods.  The supply of and demand for gold and copper is affec ted by various factors, including political events, economic conditions and production costs in major producing regions and governmental policies with respect to holdings by a nation or its citizens.  There can be no assurance that the prices of gold and copper will be such that our properties can be mined at a profit.

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Foreign Countries and Regulatory Requirements

Currently our only properties are located in Panama.  Consequently, we are subject to certain risks associated with foreign ownership, including currency fluctuations, inflation, political instability and political risk.  Mineral exploration and mining activities in foreign countries may be affected in varying degrees by political stability and government regulations relating to the mining industry. Any changes in regulations or shifts in political conditions are beyond our control and may adversely affect our business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, restriction of earnings distribution, taxation laws, expropriation of property, environmental legislation, water use and mine safety.  In particular, the status of Panama as a developing country may make it mor e difficult for us to obtain any required production financing for our properties from senior lending institutions.

Environmental and Other Regulatory Requirements

Our current or future operations, including development activities and commencement of production on our properties, require permits from various governmental authorities and such operations are and will be subject to laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety, community services and other matters.  Companies engaged in the development and operation of mines and related facilities generally experience increased costs, and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits.  There can be no assurance that approvals and permits required to commence production on our various properties will be obtained.  Additional permits and studies, whi ch may include environmental impact studies conducted before permits can be obtained, may be necessary prior to operation of the properties in which we have interests and there can be no assurance that we will be able to obtain or maintain all necessary permits that may be required to commence construction, development or operation of mining facilities at these properties on terms which enable operations to be conducted at economically justifiable costs.

Our potential mining and processing operations and exploration activities in Panama are subject to various federal and provincial laws governing land use, the protection of the environment, prospecting, development, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, mine safety, community services and other matters.  Such operations and exploration activities are also subject to substantial regulation under these laws by governmental agencies and may require that we obtain permits from various governmental agencies.  We believe we are in substantial compliance with all material laws and regulations which currently apply to our activities.  There can be no assurance, however, that all permits we may require for construction of mining facilities and conduct of mining operations will be obtainable on reasonable terms or that s uch laws and regulations would not have a material adverse effect on any mining project we might undertake.

Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions.  Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

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Amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on us and cause increases in capital expenditures or production costs or reduction in levels of production at producing properties or abandonment or delays in development of new mining properties.

To the best of our knowledge, we are currently operating in compliance with all applicable environmental regulations.

Panama Political Risks

Mineral exploration and mining activities in Panama may be affected in varying degrees by political conditions and government regulations relating to the mining industry.  Any changes in regulations or shifts in political conditions are beyond our control and may adversely affect our business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, environmental legislation and mine safety.

Dividends

All of our available funds will be invested to finance the growth of our business and, therefore, investors cannot expect and should not anticipate receiving a dividend on our common shares in the foreseeable future.

Our Officers and Directors Resident Outside U.S.; Potential Unenforceability of Civil Liabilities and Judgments

PTQ and our officers and directors are residents of countries other than the United States, and all of our assets are located outside the United States.  As a result, it may not be possible for investors to effect service of process within the United States upon such persons or enforce in the United States against such persons judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of United States federal securities laws or state securities laws.

We believe that a judgment of a United States court predicated solely upon civil liability under United States securities laws would probably be enforceable in Canada if the United States court in which the judgment was obtained has a basis for jurisdiction in the matter that was recognized by a Canadian court for such purposes.  However, there is doubt whether an action could be brought in Canada in the first instance on the basis of liability predicated solely upon such laws.

If We are Unable to Successfully Develop and Subsequently Generate Sufficient Cash Flow from Our Properties, We Could be Treated as a Passive Foreign Investment Company for U.S. Tax Purposes, Possibly Resulting in Additional Taxes to Our U.S. Stockholders and Less Liquidity for the Stock

We, as a foreign corporation with U.S. stockholders, could potentially be treated as a passive foreign investment company ("PFIC") for U.S. tax purposes.  U.S. stockholders owning shares of a PFIC can be subject to adverse tax consequences.  In general, we would be considered a PFIC if:  75% or more of our gross income in a taxable year is passive income such as dividends and interest; or, the average percentage of our assets (by value) during the taxable year which produce passive income or which are held for production of same is at least 50%.  A U.S. stockholder owning shares of a PFIC, who does not make certain elections for tax purposes, is subject to an additional tax and to an interest charge based on the value of deferral of tax for the period during which the common shares of the PFIC are owned.  Also, a gain realized on the disposition of comm on shares of the PFIC would be treated as ordinary income rather than capital gains.  If U.S. stockholders are subject to adverse tax consequences related to their ownership of our stock, they might be less willing to acquire the stock, which could result in reduced market activity and liquidity for our stock.

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ITEM 4.  INFORMATION ON OUR COMPANY

A.  History and Development of Our Company

Our company, Petaquilla Minerals Ltd., is a British Columbia company engaged in the acquisition, exploration, exploration management, development and sale of mineral properties.  PTQ was incorporated under the laws of the Province of British Columbia, Canada, on October 10, 1985, by registration of our Memorandum and Articles with the British Columbia Registrar of Companies.  We have seven subsidiaries.  Petaquilla Copper Ltd., a direct wholly-owned subsidiary, was incorporated in British Columbia on March 15, 2006.  Adrian Resources (BVI) Ltd., a direct wholly-owned British Virgin Islands subsidiary, owns all of the issued shares of Petaquilla Minerals, S.A., a Panamanian corporation, which holds title to certain of our exploration concessions in the Republic of Panama.  Georecursos Internacional, S.A., a Panamanian corporation and a wholly-owned subsidiary of P etaquilla Minerals, S.A., holds a 52% interest in the Petaquilla Property through our shareholding in Minera Petaquilla, S.A. (subject to Teck Cominco Limited's right to acquire 50% of such interest) and also holds certain other exploration concessions in the Republic of Panama.  Petaquilla Gold, S.A. is also a Panamanian corporation and a wholly-owned subsidiary of Petaquilla Minerals, S.A.  Petaquilla Gold, S.A. was formed on August 11, 2005, to hold the Molejon property interest and other potential gold deposits within the Ley Petaquilla Concession lands.  Compañìa Minera Belencillo, S.A., a Panamanian corporation, was created on September 21, 2005, in accordance with the agreement signed between Adrian Resources, S.A. and Madison Enterprises (Latin American), S.A.  PTQ owns 100% of Compañìa Minera Belencillo, S.A., which holds a 100% interest in Zone 2 of the Rio Belencillo Concession and 68.88% of Zone 1, subject to an option by Madison Enterprises (Latin American ), S.A. to earn a 31.12% interest in Zone 1 of the Rio Belencillo Concession.  On May 7, 2005, PTQ entered into an option agreement with Gold Dragon Capital Management Ltd. (“Gold Dragon”) whereby Gold Dragon could earn a 100% interest in the concession lands by the expenditure of USD $500,000 over two years on mutually agreed upon property expenditures.

On October 12, 2004, we changed our name from Adrian Resources Ltd. to Petaquilla Minerals Ltd..  The name change was approved by our shareholders at our annual and extraordinary general meeting held on July 23, 2004.  On February 3, 2005, we changed the name of our subsidiary from Adrian Resources, S.A. to Petaquilla Minerals, S.A.

Our head office and principal office address is located at Suite 1820, 701 West Georgia Street, Vancouver, British Columbia, V7Y 1K8, Canada.  Our telephone number is 604-694-0021.

Acquisition of the Petaquilla Property, Panama

We have a 52% interest in the Petaquilla Property, which interest is subject to the right of Teck Cominco Limited to acquire 50% of our interest, as more fully described under "Item 4 - Information on Our Company - D. Property, Plant and Equipment".  

Financing Agreement with Teck Corporation

By agreement dated April 29, 1991, we entered into a financing agreement (the "Teck Agreement") with Teck Corporation (now Teck Cominco Limited) of Vancouver, British Columbia, under which we agreed to grant to Teck Cominco Limited the right to earn 50% of, among other things, our interest in the Petaquilla Property by funding our obligations with respect to exploration and development of such property.  Pursuant to the Teck Agreement, we are obligated to offer to enter into an agreement with Teck Cominco Limited on the same terms and conditions as contained in the Teck Agreement with respect to any mineral property interests acquired by us after the date of the Teck Agreement (each such acquired mineral property interest is a "Project").

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Under the Teck Agreement, if we elect to prepare a preliminary feasibility study with respect to a Project, then upon completion of the study, we must present the preliminary feasibility study to Teck Cominco Limited.  Teck Cominco Limited may then elect, within 90 days from receipt of the preliminary feasibility study, to prepare (or cause to be prepared), within 24 months after receipt of the preliminary feasibility study, a final feasibility study at Teck Cominco Limited's cost (including the cost of any further exploration work as may be necessary to complete the final feasibility study).  Teck Cominco Limited may then elect, within 90 days after receipt of the final feasibility study, to exercise its right to finance the Project.  If Teck Cominco Limited so elects, we will be obligated to transfer 50% of our interest in the Project to Teck Cominco Limited. & nbsp;In addition, Teck Cominco Limited will have the right to become a member of any joint venture which is overseeing or otherwise conducting Project operations or to become the operator of the Project, subject to our existing contractual requirements in respect of the Project. Teck Cominco Limited's failure to exercise its right with respect to a particular Project does not preclude it from exercising that right at some future date in respect of other Projects.  If, however, Teck Cominco Limited elects not to proceed after receiving a preliminary feasibility study or does not elect to provide or arrange financing for a particular Project within 90 days after the completion of a final feasibility study, Teck Cominco Limited will be deemed to have surrendered and abandoned its right to finance that Project and acquire any interest therein.  In addition, at any time prior to the commencement of commercial production, Teck Cominco Limited may elect to abandon and surrender its interest in the Project by notifying us of such election.

If Teck Cominco Limited elects to prepare a final feasibility study and to provide production financing, we are not required to incur any further expenditures to bring the Project into commercial production.  However, all costs incurred by Teck Cominco Limited will be reimbursed to Teck Cominco Limited prior to us receiving any proceeds from production, as described below.

Once the Project has been placed into commercial production, the aggregate net proceeds available to us and Teck Cominco Limited are to be distributed in the following manner:

(1)

first, to repay third party debt financing;

(2)

thereafter, 100% of the net proceeds are to be paid to Teck Cominco Limited until all costs incurred by Teck Cominco Limited from the time of completion of a final feasibility study (including costs related to the financing) together with an amount sufficient to fully discharge and release Teck Cominco Limited from certain obligations and liabilities with respect to the property are paid;

(3)

thereafter, 50% of the net proceeds will be utilized to reimburse the parties' other exploration and development costs and the remaining 50% will be divided equally between Teck Cominco Limited and our company; and

(4)

thereafter, 100% of the net proceeds will be divided equally between Teck Cominco Limited and our company.

If we intend to sell or receive an offer to purchase all or any of our interest in a Project, Teck Cominco Limited has a right of first refusal to purchase same.  The Teck Agreement also provides that Teck Cominco Limited has a right of first refusal, subject to existing contractual requirements for consents and third party rights, to acquire on an abandonment, our remaining interest in a Project.  Teck Cominco Limited also has the right to participate, to the extent Teck Cominco Limited elects, in each equity financing undertaken by us prior to December 31, 2010.

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It is our position that the Teck Agreement does not apply to other properties or interests held or acquired by us, either directly or indirectly, through our subsidiaries.

Molejon Property – Panama

In June 2005, the shareholders of Minera Petaquilla agreed to separate the gold deposit and other precious

metal mineral deposits that might be developed within the Ley Petaquilla mineral concession from the copper mineral deposits within the Ley Petaquilla mineral concession. The agreement provides for PTQ, through Petaquilla Gold, S.A., to own a 100% interest in the Molejon gold deposit, as well as all other gold and precious metal mineral deposits that might be developed within the Ley Petaquilla mineral concession, subject to a graduated 1% - 5% Net Smelter Return, based on the future gold price at the time of production, payable to Teck and Minova as to 35.135% and 64.865% respectively.

Approval of the overall phased Ley Petaquilla Mine Development Plan was obtained in September 2005. The Molejon gold mineral deposit is part of the Ley Petaquilla concession lands. Transfer of title to PTQ of the Molejon gold mineral deposit, as well as the other rights as described above, is underway.

During the current fiscal year, PTQ incurred the following costs related to the Molejon gold deposit. These costs have been capitalized on our audited consolidated balance sheet as mineral property costs:

Trenching	$            811,037
Administration support	352,250
Road	293,407
Engineering and geology	275,372
Camp costs	197,300
Assaying	167,434
Drilling	106,842
Permits and licences	81,097
Data management	59,825
Community service plan	45,205
	$          2,389,769

Mineral Properties - Other

We hold various interests in other land concession areas adjacent to the Ley Petaquilla Property in Panama, including the Rio Belencillo and Rio Petaquilla concessions.

By an Agreement dated May 7, 2005 and amended on June 10, 2005, Gold Dragon Capital Management Ltd. (“Gold Dragon”), has an option to purchase all of PTQ’s interest in the Rio Belencillo and Rio Petaquilla concessions by the expenditure of $100,000 in approved exploration costs by May 7, 2007, an additional $400,000 in approved exploration costs by February 7, 2008, and by then paying PTQ $1,152,400. This sum is payable in shares of Gold Dragon.

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Directors and Officers of Our Company

Effective February 1, 2005, our Board of Directors consisted of Kenneth W. Morgan, Michael Levy, Patrick Downey, and Richard Fifer.  Our officers were Kenneth W. Morgan as Chief Financial Officer and Secretary, Michael Levy as President, and Richard Fifer as Chairman and Chief Executive Officer.  On March 23, 2005, Richard Fifer resigned as our Chairman and Chief Executive Officer.  Richard Fifer continues to serve in a non-executive role and maintains his position as a director of PTQ.  On April 1, 2005, Patrick Downey resigned as a director and on April 25, 2005, Marco Tejeira was appointed as a director of our company.  On July 5, 2005, John Purkis was also appointed as a director of our company.  At PTQ’s annual and special general meeting held on July 29, 2005, Richard Fifer, Michael Levy, Kenneth W. Morgan, John Purkis, and Marco Tejeira were reap pointed as directors.  At the same meeting, Michael Levy was reappointed as President and Kenneth W. Morgan was reappointed as Chief Financial Officer and Secretary.  On December 13, 2005, John Purkis resigned as a director.  On January 18, 2006, Graham Scott replaced Kenneth W. Morgan in the role of Corporate Secretary with Kenneth W. Morgan retaining his roles as Chief Financial Officer and as a director.  On February 15, 2006, John Cook was appointed as a director.  On February 26, 2006, Kenneth W. Morgan resigned as Chief Financial Officer but continues to serve as a director.    On March 1, 2006, John S. Watt was appointed our Chief Financial Officer.  

Principal Capital Expenditures/Divestitures Over Last Three Fiscal Years

During the current fiscal year, we have incurred $2,389,769 in Molejon property expenses that have been capitalized as mineral property costs. During the year ended January 31, 2002, we sold 4,950,690 shares we held in Hyperion Resources Ltd. for $116,955. We continue to hold 37,500 of such shares. On February 10, 2005, we sold 500,000 of our own shares on the Toronto Stock Exchange at a price of $0.65 per share. These shares were previously issued and reacquired by us some years ago pursuant to an issuer bid. Accordingly, there was no change to the number of shares issued and outstanding as a result of this sale. We will use the proceeds of the sale for general working capital purposes.

Current and Planned Capital Expenditures/Divestitures

We have either ongoing or anticipated significant capital expenditures or possible optioning of our property interests during the fiscal year ending January 31, 2007.  In relation to the planned exploration and development of the Molejon property, we anticipate having expenditures of approximately $15,000,000 to $20,000,000 during the fiscal year ending January 31, 2007.  However, this expenditure is subject to further analysis and to our ability to obtain financing.  There is no assurance that we will be successful in obtaining financing.

Public Takeover Offers

During the current and previous fiscal year, we have not received any public takeover offers from third parties nor have we made any such takeover offers.  

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B.  Business Overview

We currently have no significant properties in Canada and we are not actively exploring, or seeking to acquire interests in, mineral properties in Canada.  Since our acquisition of an interest in the Petaquilla concession (the "Petaquilla Property") in Panama in 1992, our primary focus has been exploring and developing our Petaquilla Property and other mineral properties in the Republic of Panama.

We acquired our interests in the Petaquilla Property in 1992 and 1993 through two separate series of transactions more fully described under the heading "Item 4 - Information on Our Company - D. Property, Plant and Equipment".  

Our principal operations in Panama are governed primarily by  Law No. 9 of the Legislative Assembly of Panama (the "Ley Petaquilla"), a project-specific piece of legislation enacted in February 1997 to deal with the orderly development of the Petaquilla Property.  The Ley Petaquilla granted a mineral exploration and exploitation concession to Minera Petaquilla, S.A., a Panamanian corporation in which we have a 52% interest, covering approximately 136 square kilometers in north-central Panama.  In order to maintain the Petaquilla Property in good standing, Minera Petaquilla, S.A. must pay to the Government of Panama an annual rental fee of US $1.00 per hectare during the first five years of the concession, US $2.50 per hectare in the sixth to the tenth years of the concession and US $3.50 per hectare thereafter.  Initially, the annual rental was approximately US $13,600 payable by Minera Petaquilla, S.A. and funded pro rata by its shareholders.  The current annual rental is approximately US $34,000. The concession was granted for a 20-year term with up to two 20-year extensions permitted subject to the requirement to begin mine development and make a minimum investment described below.

The Ley Petaquilla contains fiscal and legal stability clauses necessary in order to obtain project financing for Petaquilla and includes tax exemptions on income, dividends and imports.  The Ley Petaquilla also provides for an increase in the annual available infrastructure tax credit, higher depreciation rates for depreciable assets which cannot be used in the infrastructure tax credit pool and a favorable depletion allowance.

Under the Ley Petaquilla, Minera Petaquilla, S.A. was required to begin mine development by May  2001.  However, Minera Petaquilla, S.A. was able to defer commencing development operations for one month for every month that the price of copper remains below $1.155 per pound for up to a further five years (i.e. until May 2006 at the latest).  Pursuant to the contract law under which the Petaquilla concession was granted by the Government of the Republic of Panama, PTQ has delivered a phased Mine Development Plan to the Government of Panama.  This phased Mine Development Plan was approved in September 2005.  Refer also to “Item 3 – Key Information – D. Risk Factors”.  This approval resulted in the extension of the land tenure for an initial 20 year period commencing September 2005, subject to PTQ meeting certain other development and operat ional conditions on an ongoing basis.  Terms of the land tenure have two additional 20 year terms that are also subject to PTQ meeting other ongoing development and operational conditions.  The Ley Petaquilla also requires Minera Petaquilla, S.A. to make a minimum investment of US $400 million in the development of the Petaquilla Property.  During the fiscal year ended January 31, 2002, we recorded  a write-down of $32,628,433 in respect of our Petaquilla Property as a result of depressed copper prices making development of the Petaquilla Property uneconomical at that time.

C.  Organizational Structure

The following chart sets out our corporate structure and the mineral properties owned by each of our subsidiaries:

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