gold comes of age as juniors raise output

Quite a bit of reference to Catalpa in this article...

http://www.theaustralian.com.au/business/opinion/gold-comes-of-age-as-juniors-raise-output/story-e6frg9lo-1225881105541
Tim Boreham From: The Australian June 18, 2010 12:00AM

THE gold juniors have a nasty habit of overpromising, but finally the sector looks to be on the cusp of an, er, golden era as new producers ramp up to meaningful production.

There are no excuses: with the gold price sticking resolutely above $US1200 an ounce, if they don't succeed now they never will.

Ever so gradually, investors are willing to forget the cost blowouts and hedging follies of old: according to Shaw Stockbroking's Geoff Muers, the sector has outperformed the broader market by 7 per cent over the past year and 36 per cent over the past two years.

"We remain neutral on the gold sector overall," Muers says. "However, we feel the sector is about to come into a period of recovery led by project ramp-ups, de-hedging and solid cashflow, even allowing for a gold price lower than today."

The number of gold-related emails clunking into Criterion's inbox (they used to be from uranium explorers) confirm the level of interest: yesterday, WA producer Ramelius (RMS, 46c) trumpeted about passing the 100,000oz milestone at its Wattle Dam Mine, while Saracen Minerals (SAR, 46c) said it had produced 19,300oz in the first two months at its Carosue Dam site. Highlighting the improving sentiment, Aphrodite Gold's $9.25 million raising -- aimed at developing its 1-million-ounce project near Kalgoorlie -- closed oversubscribed.

Last week, Catalpa Resources (CAH, $1.47) proclaimed it was on track to be a 130,000oz producer -- 100,000oz from its own Edna May mine in WA and 30,000oz attributable share from Cracow, 70 per cent owned by Newcrest Mining.

Muers suspects the bullion price will retreat -- probably when the US raises interest rates and investors rediscover the greenback. "That said, the problems in the world are not short term and gold should do quite well."

Even if gold retreats to $US800-$US900/oz, a typical Aussie junior producer should do OK. While few tick all the boxes -- low cash costs, unhedged production and a decent mine life -- Muers believes St Barbara Mines (SBM, 36c) Catalpa, Avoca, Allied Gold (ALD, 36c) and Oceana Gold (OGC, $3.71) will grow production over the next year.

Criterion in the recent past has liked Ramelius, Avoca and the South African-centric Gold One (GDO, 28.5c). Being loyal to a fault we'll retain these as speculative buys and throw in Saracen as well.

It's also hard to ignore Catalpa, which aspires to be a 250,000oz producer "in the near term".

Catalpa subsumed Lion Selection in a scrip deal last year -- delivering its Cracow stake -- and then opened Edna May two months ahead of plan. Catalpa has corporate sex appeal given it has first right of refusal over Cracow, which the merged Newcrest-Lihir is likely to sell.

We share Muers' view that some of the would-be producers look expensive. Andean Resources (AND, $3.44) has a $1.6 billion market cap, even though it's not yet producing from its 3-million-oz Cerro Negro dirt in Argentina.

Similarly, Perseus (PRU, $2.19) has a $900m market cap as it pursues it Central Ashanti project in Ghana.

Tissue Therapies (TIS) 18.5c

TISSUE'S clinical trial results yesterday stood out from the slew of biotech guff masquerading as market-sensitive announcements -- and not just because of the inclusion of graphic pictures of festering wounds.

In a WA-based trial of five more venous (blood-supplied) ulcer patients, the wounds were 75-100 per cent healed within 24 days using Tissue's patent unguent, VitroGro.

Of the 17 patients treated, three were fully healed in 24 days, with an average reduction of 39 per cent. According to Tissue chief Steve Mercer, up to 50 per cent of diabetic and venous wounds remain unhealed after 20 weeks of standard treatment (such as compression bandaging). Tissue's next step is a 40-patient trial to support an approval application to European regulators. Given the product is classed as a topical device rather than a pharmaceutical product, the trialling and approval process should be much faster than for a drug application.

Tissue shares jolted 8 per cent yesterday, but the real leg-up comes when the company finds a deep-pocketed partner. "We are in commercial negotiations with a number of international wound and healthcare companies," Mercer says. "I'm quite confident we will have an agreement by the end of the financial year."

Tissue is a speculative buy. There's muted talk Tissue might team up with Avita Medical, which is developing Australian of the Year Fiona Wood's spray-on skin for burns treatment.

[email protected] Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author does not hold shares in the stocks mentioned.