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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (34230)	3/16/2009 10:00:45 PM
From: LoneClone	Read Replies (1) \| Respond to of 193918

Catalpa Resources Takes Full Advantage Of The High Aussie Gold Price, And Puts Forward Selling Back On The Agenda By Our Man in Oz minesite.com Here’s a recipe guaranteed to make you some money. Take one old gold mine, mix it with an old-fashioned financing technique, recruit a team of seasoned miners, apply a sky-high gold price and, presto, you’re in business. Not everyone will approve of what’s happening at the historic Edna May mine near the small wheat-belt town of Westonia, half-way alongthe highway to Kalgoorlie in Western Australia. Gold purists - those investors who dislike forward selling - will snub Catalpa Resources, the small Australian company which is restarting Edna May as a 100,000 ounce a year gold mine, because it has signed up for a lucrative forward selling programme. But, when an investment bank offers a chance to lock in a gold price of A$1,544 per ounce out to the year 2015, you would surely be a mug to refuse. And the management team behind Catalpa are not mugs. Led by career mining engineer Bruce McFadzean, Catalpa is an assembly of old mining hands with an old mine which has been waiting on the sidelines for the right conditions to make a return. Those conditions arrived when the gold price slipped past the $US1000/oz mark and the Australian dollar fell from near-parity with its U.S. counterpart to around US64c. The combination of rising gold and falling currency has produced the highest ever Australian gold price and the first signs of a significant re-birth of the Australian goldmining industry. Helping out is the sudden availability of skilled professionals cut free from by distressed base metal miners, and falling construction and equipment costs. First worked in 1911, the Edna May mine is low-grade deposit averaging around 1.1 grams a tonne, but one with a large ore resource currently estimated at 41.1 million tonnes. The mine was worked intermittently during previous gold booms, but was last in the headlines as an asset of the old Australian Consolidated Minerals (ACM) in the 1970s. It was acquired in 2001 by Westonia Mines, which changed its name in 2007 to Catalpa. The plan eight years ago was to prove sufficient ore to marry the mine with the old Big Bell processing plant which was shifted, ready for re-assembly, alongside the Edna May pit. That plan was delayed by a combination of factors, including the relatively low Australian gold price, high construction and staff costs, and an unwillingness of investment banks to structure appropriate gold project financing. “Everything is now moving in our favour,” said McFadzean during a chat with Minesite’s Man in Oz. “We have been given the chance to lock in a high gold price, we have the plant ready for refurbishing, and we can see a long stretch of very profitable production.” Just how profitable is rather interesting because Australian investors do not yet seem to have acknowledged Catalpa’s rapidly improving fortunes as quickly as the gold-lending crew at Macquarie Bank. If all goes to plan, and it should courtesy of the forward selling deal, Catalpa can effectively recover the capital cost of redeveloping Edna May from less than two year’s profits. The equation looks like this, starting with an estimated A$92 million in capital costs to restore the mine and plant. Funding is coming from a A$67.5 million facility from Macquarie, and an issue of A$30 million in fresh equity with A$15 million already pledged by Catalpa’s biggest shareholder, Lion Selection, which owns 51 per cent of the company. The balance is expected to come from a shares sold through the stockbroking firm, Austock. Revenue is forecast to start flowing in the first quarter of next year with financial models pointing to very fat profit margins. McFadzean estimates that the project should have a life-of-mine cash operating cost of A$636/oz which, using the Macquarie forward price of A$1544/oz implies a margin per ounce of A$908/oz, or A$91 million a year. It will not, of course, be as simple as that, but back-of-the-envelope calculations highlight the fat margins emerging from the re-birth of Aussie gold. For his presentations McFadzean is using a life-of-mine profit of A$343 million assuming a gold price of A$1200/oz, and $470 million at A$1400/oz. “When we looked at the numbers at A$1200/oz we knew we had a ball-tearer of a project,” McFadzean said. “Any price above that and the project just gets better.” Early planning assumes a mine life of seven years, but that is likely to be extended as Catalpa explores deeper and looks to re-open an underground phase of the mine courtesy of a decline dug by previous owners. There is also the potential to add to the 1.5 million ounce ore resource from an extension of the Edna May orebody called Greenfinch. “We’re in the process of calculating what we have at Greenfinch,” McFadzean said. “We should be able to announce a resource at the end of March and a reserve by the end of April.” For investors hunting a high-grade gold project Edna May is not for them. For anyone hunting a profitable gold exposure it’s hard to go past a project which might be low grade but which has aligned its stars almost to perfection – complete with a highly attractive location. The town of Westonia might only have a population of 80 (and with more names than that on local war memorials) but it is just a few kilometres north of the main east-west highway, and the mine itself is remarkably close to the town. “The drive from the mine gate to the centre of town takes two minutes and thirty five seconds,” McFadzean said. “The drive from the mine gate to the pub takes two minutes and 15 seconds.”