Catalpa merger aims for mid-tier gold miner status
Former Rio Tinto and BHP mining engineer, Bruce McFadzean has plans which should bring Catalpa Resources up to mid-tier gold producer status within the next couple of years.
Posted: Monday , 20 Jul 2009
For a company salvaged from the wreckage of a small Australian gold miner, and then renamed after a U.S. ship which initiated a dramatic escape of Fenian prisoners from a West Australian penal colony in 1876, Catalpa Resources has big plans to become first of all a mid-tier gold producer, and then perhaps go on to bigger things. Managing Director, Bruce McFadzean spelt out the company's proposed path to Mineweb in a recent meeting in London.
The key to the move forward is a merger of Catalpa and the gold assets of Lion Selection into an enhanced Catalpa. The merger should be completed by early October, and according to McFadzean all the major shareholders of both the current Catalapa and Lion Selection are very much in favour of the scheme.
Under the proposed scheme, the merger will amalgamate Catalpa's 100,000 ounce year Edna May gold mine currently under construction in Western Australia (in which Lion has a 46.9% shareholding) and the latter's 30% ownership of Newcrest's producing Cracow gold mine in Queensland.
As envisaged the scheme is very much a tidying up operation for the merged company with Lion forfeiting all its options held in Catalpa, the lion 46.9% holding in Edna May will be consolidated into the new company and Catalpa will also acquire a pre-emptive right over Newcrest's 70% Cracow stake. Lion shareholders will hold 60.9% of the new Catalpa and old Catalpa shareholders the 39.1% balance. The company is also looking at a 1 for 10 share consolidation which it feels may help bring it out of the penny stock category.
The friendly deal, assuming no hiccups, will give the new Catalpa immediate producer status through the 30% holding in Cracow with attributable share of production of some 30,000 ounces of gold a year mined at a current cost of A$575/ounce (US$466/oz) generating an immediate cashflow as it brings Edna May to production. The company has a very experienced Board of Directors and management team who should be able to guide it through the Edna May startup and forward.
Obviously the key to the success of the new company is the Edna May mine where a positive feasibility study was completed in January. Since then, McFadzean says, the company has managed to reduce proposed capital expenditure and has increased reserves by more than 50% and secured full funding achieving an exceptional forward sales gold price for over 350,000 ounces of production at A$1557.5/oz - equivalent to US$1,264 an ounce at current exchange rates! Timing is everything when metals hedging is concerned!
Catalpa reckons to be looking at a mid 2010 start-up date for Edna May, and a second hand mill (ex big Bell) is already on site and ready to be constructed with an ore capacity of 2.8 million tonnes a year - to be ramped up to 3.2 million tonnes a year, and Capex is put at only A$92 million. Government approvals are said to be imminent and local infrastructure (power and water) is available with the accommodation village 75% complete and recruitment of key personnel well under way.
The Edna May operation would be an open pit, but has great underground potential beyond this with grades appearing to increase at depth. It has been extensively drilled and most of the 1.487 million ounce resource is in the measured and indicated category. In the even higher quality ore reserve category the figures are put at 21.1 million tonnes grading 1.2 g/tonne for 817,000 ounces in the Proved and probably categories. There is also great scope for expanding reserves both along strike and at depth.
Meanwhile the company will be generating positive cashflow from Newcrest's Cracow mine where there is also scope for resource growth and exploration to extend mine life and is a totally unhedged gold producer.
Catalpa does have vision - now it has to turn its vision into reality and it would seem to have a good chance of so doing providing the gold price remains strong - although its very successful hedge will cushion it a against any significant decline over the next three to four years.