IPO Watch: Tulla Resources

For this week's IPO watch, we're talking to Mark Maloney, who's the Executive Director of Tulla Resources, which is a gold development and mineral exploration company and we've also got their CFO, Mark Macintosh, on the line. Their key asset is their 50 per cent interest in the Central Norseman Gold Project, which is a historical gold mine that's in the goldfields of Western Australia. Mark explains to us why it's an attractive mine and the exploration potential offered by the 750 square kilometre tenement package they have. He also gives his view on what's happening in the gold market at the moment.

They're raising $78.3 million at an offer price of 90 cents per CDI, which gives them an indicative market cap of $243.8 million once listed and the offer closes on March 5^th.

Here's Executive Director, Mark Maloney (MM), and CFO, Mark McIntosh (MMC) of Tulla Resources.

Table of contents
Tulla structure
Agreement with Pantoro
Central Norseman Project history
Production capacity
Exploration potential
Capital position
Recent board appointments

Mark, I thought it would be good to start off with a bit of an explanation of what Tulla Resources does and how it fits into the structure of Tulla Group.

MM: Sure, so we've set Tulla Resources up specifically to look after our mining investments. Tulla Group is involved in a number of sectors, mostly in mining, mining services, finance, wellbeing, some accommodation and property, but the real focus of what we do is mining and mining services. So we've set Tulla Resources up to be our specifically focused mining or resources vehicle going forward. And we've seeded that with a 50 per cent interest in the Norseman Gold Project in Western Australia, that's the starter project, which we believe is a great project Tier 1 asset in a Tier 1 jurisdiction and then over time, as we bring Norseman into production and back into cashflow and exploit the exploration upside there, we’ll look to grow the vehicle into other resource opportunities as well.

Maybe we will get onto the specifics of that project in a minute, but could you just start by explaining, the other half of the project is held by another listed company, Pantoro. Would you give us the specifics on that project and the deal that you’ve got with Pantoro because they initially acquired their interest through a farm-in and joint venture agreement, didn’t they?

MM: They did. Yeah, we ran an extensive process back in… we initially had 100 per cent of the asset and then, as always, we focus on our skillset, which is identifying developing assets and then bringing in the right operators. We thought the asset back in early 2019, was ready for a good operator. So we ran an extensive process back then in 2019 to select a partner and an operator and Pantoro won that process, if you like, we selected those guys. And the deal was that they bought into 50 per cent of the project through cash, some shares, we own 7.1 per cent Pantoro or 100 million shares. And then they had to spend the first $50 million on the project, which Mark, correct me if I’m wrong. I think they’ve spent about $33 million of that?

MMC: That was it, just at 31 December.

MM: As of 31 December, so they’ve still got a little bit left to spend and then they’re farmed in. But they also have royalty payments to us and another milestone payment. Does that cover everything?

MMC: Yeah.

MM: That’s their earn-in to the 50 per cent and they look after day-to-day operations as we want them to.

When are you expecting them to reach that full $50 million? Do you think it will be in the next year or so?

MM: I think we’re talking around the end of April.

This year?

This year. Yeah.

And then could you also tell us a bit more about the Central Norseman Project then Mark, because operations began, I think it was in 1935 and recently placed into care and administration about five years ago. Could you give us some history on the site?

MM: Yeah, sure. So the site’s had a long history as you’ve flagged. Western Mining ran it in the early days for many years, quite profitably, I understand, and it was a good asset for them. It then went through the hands of some kind of mixed ups and downs and people mostly coming unstuck there because they didn’t understand the geology properly and not having the right management teams. And I think also at the time one of them got caught out on hedging and low gold price was a bit of an issue. It started a very good life with Western Mining and then had some mixed histories, made some good money, but a few people struggled with it when it was in their hands.

But we stopped production because we thought we needed to go back and do a reset and redefine the site and get it completely right before we started operating again. And then I think that’s exactly what’s happened. Pantoro have come in and you know, the results that they’ve been getting have been above expectations and everyone’s been positively surprised. I think the difference this time is that we’re taking more of an open cut approach and also gold price is obviously a lot higher and there’s much more efficient technologies out there as well now. Is there anything you’d add?

MMC: No, that’s it.

What sort of production expectations do you have then for it, and what’s the project life?

MM: Well, there’s been a definitive feasibility study released by Pantoro. Mark, you might just want to go through that.

MMC: Yeah, I guess, the phase one is 7-year mine life with a one year construction and six year operation period with a 1 million tonne per annum plant, but certainly as has been emphasised by our JV partner and ourselves, it is at phase 1 only at the moment. 100,000 metres of drilling to be carried out over the 12 months since releasing that DFS, so that’s through this calendar year with an expectation of doubling the reserve. And through that I guess we expect to take the DFS further with a longer mine life and potentially a larger and annual production profile. They’re the plans. There’s still work to be done over the coming nine to 12 months.

As I understand it, there’s also quite a bit of infrastructure around it, but you’re looking to replace the existing processing facility with a carbon in leach processing plant. So what’s that allowing you to do?

MM: So what’s it allowing us to do, I guess there, there is an existing plant there, but obviously parts of that are being pulled down with the new crushing circuit. And so our plan out the back enabling us to increase that annual production, but also take on, I guess, multiple ore sources from around that Norseman area. Through the work that the JV has done, identified the various, I guess, chemical components of the metallurgic components of the sources and ensure that that plant can accommodate the various hard rocks, as well as the softer sources around the lakes, and in the transition material.

The prospectus also highlights, and you’ve discussed briefly, the exploration potential around that tenement package. What sort of recent drilling results have given you optimism about the tenement package you’ve got there?

MM: Certainly, one of the key focuses I guess, at the moment is down in the Scotia area. Pantoro have released numerous results around there with the Green Lantern, and Panda discoveries. I guess that's what's very pleasing for us is the ability to identify new resources near some existing mining centres, so that's one area. In addition to that, there's certainly a significant number of anomalies going back to the Western Mining days over the Lakes and, and that's what Pantoro, and the joint venture has started exploring as well with some positive results out of Sailfish and other areas on the Lake. So those are the key focuses, but there's a large area tenement package there. And so it's something that I guess the joint venture will continue to work in, in defining the appropriate targets.

And so you're looking to raise that $78.3 million through this IPO. Do you feel as though you’re comfortable, that'll be enough capital to get you through to production? Which is, I think, did you say next year is your Production?

MM: Yeah, late quarter 1 or quarter 2, 2022. Yeah, we think we’ve raised enough to be fully funded and also to keep the exploration spend going because we want to make sure that the asset continues to have a well-defined future ahead of it. We also have the added liquidity on our balance sheet of the Pantoro shares, which are roughly worth $22 million or thereabouts, they form strategic and liquidity purposes as well and we’ve also got zero debt on the balance sheet. So there’s a potential to explore debt options should that be needed too.

I wanted to get your view, Mark, on the gold industry at the moment. You mentioned the gold price earlier, obviously had a fantastic run last year, but over the last few months it’s begun declining. How much do you read into that?

MM: Well, it's always hard to predict where the gold price is going to go in the short term, isn't it? And I think at the moment it's just a function of people feeling excited about vaccines and the world starting to recover, et cetera, which is which is a good thing; it's a nice thing. But I think longer term we can't get away from the fact of the huge amount of money that's been printed and that's going to be printed; inflationary pressures. We're still optimistic on the gold price longer term on a three to five year view.

You also recently announced some additions to Tulla Resources board, Michael Anglin and Andrew Greville. Could you explain what sort of experience they bring?

MM: Yeah, sure. They’re, I guess, what we would describe as global resource industry leaders. Mike was a very senior guy at BHP for many years running their base metals division. And since leaving there he’s been very active in the North American mid-tier listed mining market. He’s currently based in San Francisco. But he has a huge amount of experience in overseeing joint ventures, bringing assets into production, resource M&A, resource strategy all of which are essential to us. Probably his most notable position is he’s currently Chairman of SSR and he’s been an instrumental figure in growing that from a small gold producer into something with a $5 billion-plus market cap today. I think they’re producing around 750,000 ounces per annum spinning off $600 million net cash. A very successful business that he’s been instrumental in building in recent times.

I think the other thing is he also has a strong following in the North American capital markets with a lot of the big gold fund and resource funds over there. That’s been helpful in putting us on their radar. Then I think likewise Andy Greville, he also has a strong background from BHP and Xstrata, a strong background in business development, which is going to be essential for us in growing the business, and also being very active in the Australian mid-tier listed mining market. And I think the last point I’d make about both of those guys is they have access to very good high quality deal flow early and again, that’s going to be really beneficial to us as we grow the business.

And just lastly, could you give us a bit of an outlook on what the next 12 months look like upon listing?

MM: Yeah, the focus for the next 12 months is to really work closely with our joint venture operating partner, Pantoro, to make sure that we are bringing the asset into production smoothly and that's happening within the timeframe that we've outlined. Priority number one is to get that production going and to get the cash coming out of the business as well. Alongside that is, as Mark talked about before, to make sure we're doubling the reserves that were announced in the DFS and to also prove out other high prospect exploration areas again, to make sure the future is well in train. That's really the focus for the next 12 months and then I think beyond that, we will start to look at other growth opportunities.

Thanks very much for your time, both of you.

MM: No worries.

That was Mark Maloney, Executive Director and Mark McIntosh, CFO of Tulla Resources.