Catalpa Resources

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Under promise & over deliver

There are countless proverbs advising us not to run before we can walk, but few that suggest walking and saving our ability to run for later. Similarly, there’s something very striking about a company that achieves a steep growth curve in a relatively short time frame, yet continues to grow sensibly throughout the duration.

Catalpa Resources Limited, a Perth-based company on the cusp of becoming Australia’s next mid-tier gold producer, has done just that and continues to consistently meet or excel its goals.

“We try not to beat our chests and yell to all from the rooftops. Instead we’re gaining an industry repu­tation where people think, ‘those guys just go off and do it,’ and I think that’s why we’ve grown so quickly,” Bruce McFadzean, Managing Director says.

“I think that’s our catch cry: over-deliver and under-promise. There’s no point in going out and telling the world an embellished story. We tell it how it is, then if we deliver, that’s good; if we can do better than that, that’s fantastic.”

McFadzean says he was the fourth member of staff when he joined Catalpa in June 2008. Now the company is 60 employees-strong. During this time, Catalpa has grown from a A$15-million company to a A$250 million one.

On a trip to present at the London Mines and Money 2009 conference in the first week of December, McFadzean stopped by the IRJ office to talk about how under-promising and over-delivering has enabled Catalpa to grow both sensibly and swiftly, increasing the Edna May ore reserves by over 50 per cent in just over one year.

Understanding Edna May

McFadzean is a mining engineer by background and brings 32 years of experience to Catalpa. “My first 15 years were spent with Rio and BHP. Then I moved into the smaller capped sector. I think you can learn whatever you want to learn from the big companies then take it into the smaller sector,” he says.

“I’ve generally been onsite running mines, and I have a big technical, as well as operational, background. I’ve always flipped between the two. I specialize in fixing up operations, or start-up operations. This is my sixth start-up.”

McFadzean says when he was initially approached about working for Catalpa, he was not entirely sure about the project.

“But then I had a look at the data, and what I saw was there was something you don’t see very often as a mining engineer. It’s a big, low-grade deposit. It doesn’t have dazzling grades, but it’s extremely well-drilled. If you have a look at our fly-through, you can see all of the drill holes,” he says.

“Personally having optimized and reviewed some hundreds of ore bodies in my career, there are things that you have to tick off for it to be successful. The first thing is it has to be well-drilled, and the second is it has to be well-tested. In other words, from a metallurgical viewpoint, the ore body is well-understood. This project ticks both those.”

McFadzean saw that Edna May, nestled in the Eastern Wheat belt of Western Australia, 312 kilometres east of Perth, was well-drilled, well-understood and enjoying consistent high recovery too.

“That’s when I looked at this and thought, with the right gold price, it could be really exciting. Then I jumped on board, restarted the feasibility study, and rebuilt the board of which I was the third member. We finished the feasibility study and approached the banks,”
he says.

“In February this year, we gained $68-million worth of debt from a Macquarie, we put in an extraordinary hedge position. I don’t think that anyone realizes how good our hedge is. We have 350,000 ounces sold forward at A$1,560 an ounce. Currently, in Australian dollars it’s about A$1,300 an ounce. “

The feasibility study indicates a seven-year mine life, at an annual production rate in excess of 100,000 ounces.

“We then announced the merger [with Lion Selection Limited, a mining investment company from Melbourne, Australia] in June, started construction in July, and we finalize the merger next week. Our plant is 70 per cent built and we’re on time and on schedule from a budget perspective. Everything’s looking great and, as of next week, we’ll be a producer of the 30 per cent joint venture in Cracow which is a Newcrest-run operation,” McFadzean says.

“We’ll get 30,000 ounces a year out of that, and then in May/June we’ll have our 100,000-ounce project up and running. The project has really gone from something small, to something quite big very quickly.”

Today, Edna May is a A$92-million project which generates over A$70 million of cash-margin per annum.

“It’s a big, low-risk operation. Yes, it’s low grade, but that doesn’t matter. When people understand resource optimization the grade is irrelevant. The lower the grade, the bigger the process plant. That’s really the rule, and we have a 3-million tonne process plant, so it’s big by anyone’s terms. But it’s the right plant for our style of deposit,” McFadzean says.

Edna May’s history comprises of three separate mining events, the first of which was an underground mining event in 1911. Underground mining also took place during the Second World War, 1940 to 1945, followed by open pit mining over five years in the late 1980s, under ACM and Normandy Mining.

“So there’s 650,000 ounces that have come out of the project to date. We have another 1.66 million ounces in the ground now. This week, we just announced a reserve of 950,000 ounces, so we’ve increased that again. It’s had a great history in terms of gold at that particular site. There’s an existing pit there but what we’re actually mining is the rest of it.”

“The geos have this one sitting right next to a little historic town, and it’s a two-and-a-half-minute drive to the mine. There were 60 people in the community and we’ve changed it into a 240-strong community. We’re at the peak of construction, so there’s about 180 people onsite now building our project. We have a great relationship with this really rural community. Accommodation is already built and we have our own village of 88 full ensuite rooms for our employees. We employ a lot of local people too, and they get to go home every night which you don’t normally get in the mining environment.”

With the mining-friendly community, great amenities, sound-geological and metallurgical understanding, an expandable resource and a merger equipped to take Edna May into commer­cial production, the Catalpa team is ready for the next step.

Catalpa’s future: The people, market perception and plans

“One of the great things about building a company is getting the right people on board. It doesn’t matter how good your ore body is, if you haven’t got great people, then you won’t be a success. Our management team is made up of seven guys, and we all compliment each other’s strengths and weaknesses; it’s a great blend,” McFadzean says.

“We’ll be up to 100 staff by early next year, so it’s been a big growth phase. We, as an organization, focus heavily on our people and we spend a lot of time mentoring, talking with and educating them. We’re aiming for a culture of respect and growth. It doesn’t matter what part of the business you’re in, you’re respected by everyone.”

In describing Catalpa’s working environment as “more like a family,” McFadzean outlines one of the key building blocks that have allowed the company to establish its firm foundations for growth. Another inevitable consideration is, of course, the global financial crisis, which he says has altered the global perception and appetite for gold quite drastically.

“Gold has moved into a different light as a result, and the way I see the global financial crisis is that it’s just a collapse of our financial system. Before it took place, there was no indication of any failure coming,” he explains.

“Everyone was saying that gold has had its day and it sounded like it didn’t have a purpose. But the one thing that the financial collapse has done is showed everyone that we can’t rely on fiat currency for everything anymore, and now we’re starting to see the treasuries turning to hold the gold in their portfolios. Many are looking to have that five or six per cent of their treasuries sitting in gold now. It’s put gold back on the map, and not as a glitter metal, but as what it really is: as a store of wealth and in bad times we have gold and gold doesn’t lose value.”

Now with their top team in place and a nod to the revived appetite for gold, McFadzean explains that Catalpa’s plans for the coming months and year are well within the company’s reach.

“We’ll finish the merger next week. The other focus for us is finishing Edna May and bringing it in on time and on schedule. We’re very confident that’s the case in terms of dollars and time. There are other things that we’re looking at as well and one of the things we’ll do is growing sensibly. Again, we won’t scream and yell and beat our chests about it, but we’re looking at other opportunities,” he says.

“We’ve demonstrated that we’ve grown the business quite significantly over the last 18 months. We acknowledge that there have been elements of luck and timing involved with the gold price attached to that, but nonetheless, we’re ready and in position to further grow our business. We will keep growing, and we’ll do it sensibly.”

On December 10, 2009, Catalpa’s merger with Lion Selection took legal effect. This is the latest example of Catalpa’s continued fulfilment of all they set out to achieve, and it truly cements the company’s status as an emerging mid-tier producer.


www.catalparesources.com.au