Ann: Maiden Underground Resource , page-7

"I wonder whether this increase in gold reserves was factored into the Macquarie valuation."

triman

macquarie issued a CAH update on 23 Nov which included a comment re the maiden high-grade underground resource (see paste below). note that macquarie have NOT included the this in their $2.50 target price and they are currently valuing this at 65c per share. ("The inclusion of underground mining, through higher grade realisation, but excluding the likely increase to mine life, would increase our valuation by $0.65ps. We will look to add underground potential when more definitive commentary is provided by the company.")

i take it that's what you were hoping to hear? ;-)

k


Catalpa Resources
Emerging underground potential
Volatility Index: Very high
Recommendation: Outperform

Price 23 Nov 10 $1.95

Event

Catalpa has announced a high grade underground Inferred Mineral Resource at Edna May.

In addition, as a result of previously announced geotechnical and mill commissioning issues, Catalpa has revised down its Financial Year 2011 production guidance for Edna May.

Impact

Underground potential begins to be realised: Catalpa has announced an inferred underground resource of 660kt at 9.1g/t Au for 195koz. The resource is the culmination of a new structural interpretation and following the current drilling program is likely to be expanded. We do not include underground mining potential in our valuation for Edna May. That said, if we assume additional ore is used to supplement the open cut feed and increase the grade milled from 1.2g/t to 1.65g/t, it would lead to an additional around 43koz pa Au. The inclusion of underground mining (through higher grade realisation, but excluding the likely increase to mine life) would increase our valuation by $0.65ps. We will look to add underground potential when more definitive commentary is provided by the company.

Lower Financial Year 2011 production guidance: As a result of a delay in mining schedule and SAG mill commissioning issues, Catalpa has decreased its production guidance for Edna May to 80-90koz at cash costs of A$730-784/oz, in line with our forecast of 83koz at A$753/oz, reflecting concerns of YTD lowerthan- expected mill throughput levels. Previous guidance was 90-98koz. We believe this is part of the normal commissioning process and remain comfortable with our long-term production forecasts for Edna May.

Earnings and target price revision

No changes.

Price catalyst

12-month price target: $2.50.

Catalyst: Production ramp-up at Edna May, underground resource expected in Second Quarter 2011.

Action and recommendation

We maintain our Outperform recommendation for Catalpa. We believe the market will look past the lower Financial Year 2011 production guidance and will focus on the emerging underground potential for Edna May.

Catalpa's strong management, open share register, supportive shareholder base and attractive tier two assets place the company in a strong position for any consolidation (either as an acquirer or target) of the mid-tier Australian gold sector, in our view.