hi allthis morning macquarie private wealth released its...

hi all

this morning macquarie private wealth released its inaugural research note on CAH with an OUTPERFORM rating and a 12 month price target of $2.50.

i have found macquarie research to be of variable quality (like most brokers!) but they have a large and well-heeled client base. and so IMO, at a minimum, the increased exposure should be a positive for CAH sp.

below is an excerpt from the summary page. i'm happy to post the full 18 page pdf detailed research note if anyone is interested and can tell me how/where i can do so (no email!) ...


Catalpa Resources Ltd.

Event

We initiate coverage on Catalpa Resources with an Outperform
recommendation and a 12 month target price of $2.50ps, which represents a 28% premium to its recent trading level of $1.95ps. Applying a 30 year DCF methodology, we derive a valuation of A$2.54ps or A$411m.

Impact

Production ramping up. Catalpa‟s investment proposition is underpinned by:

Edna May: Ramping up to >100koz per annum of gold production at cash costs of ~A$770/oz. Based on current reserves of ~1.0moz at 1.06g/t Au,we forecast 10 years of mine production, with mine life to 1Q20;

Cracow: A mature ~30koz per annum of gold production at cash costs of ~A$480/oz from its 30% holding in the Cracow mine. With a resource of >1moz (100% basis) at 7.7g/t Au, we forecast mine life to 2Q15.

Edna May is the primary driver of production growth. As Edna May ramps up, we forecast Catalpa‟s production to grow to 139koz by FY13. With a forecast A$6m to be spent on exploration in FY11, we like Edna May for the potential to extend mine life and grade through increased open pit production, as well as via underground production. We do not incorporate underground mining potential in our base case assumptions, which we value at $0.65ps.

Hedging, a positive. Catalpa entered into hedges for a portion of its Edna May production as a requirement of the debt funding related to the development capex at Edna May. With the major capex now passed, there is minimal spend going forward, allowing Catalpa to build healthy cash positions.

In the current environment of strong gold prices we believe Catalpa will maximise its leverage to the upside and is unlikely to hedge any further production.

Investment risks. As with all developing mining companies, Catalpa is subject to a variety of investment risks. These include execution of potential future acquisitions at the right price, successfully ramping up production and managing water supply at Edna May, hedging profitability and potential inclusion of the gold sector in the proposed MRRT.


Price catalyst

12-month price target: A$2.50 based on a DCF methodology.

Catalyst: Production ramp-up at Edna May, underground resource expected 2Q11.


Action and recommendation

We believe the market is undervaluing the potential delivery of underground production at Edna May and extending mine life through ongoing exploration
success at both Edna May and Cracow.

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.