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Date : 12/05/2021

Tulla Resources



Market Cap : $238.57 Million


52 Week Range : $0.45 - $0.69

Share Price : $0.57

Tulla Resources has a Tier 1 asset in a Tier 1 location. They are scheduled to produce gold next year and we recommend long-term investors to "Buy".

Company Analysis

Incorporated in 2005, Tulla Resources is a gold development and mineral exploration company. It holds 50% interest in the Central Norseman Gold project covering an area of 750 square kilometres comprising of 150 contiguous mining, exploration, and prospecting tenements located in the Eastern Goldfields in Western Australia. The company recently went public on ASX and priced its IPO at 90 cents and raised $78.3m. The funds raised are being used to:

  • Fund the near-term capital expenditure commitments in relation to the development of the Project and fund exploration expenditure at the Project and general working capital.
  • Repay to the private Tulla Group $20 million as part of the agreement to fully discharge the secured debt.
  • Pay the transaction costs of the Offer (Up to $5.4 million).

Tulla is backed by the Maloney family, the former owners of the Mac Services Group and a well-established small cap fund manager Down Under. Kevin Maloney and son Mark sit on Tulla’s board and they are the largest shareholders in the company – making Tulla a founder led company. Michael Anglin, BHP’s former vice president of operations and COO has joined the board of Tulla along with his ex-colleague from BHP, Andrew Greville. This has ensured a very experienced and star-studded board of directors to lead Tulla into an gold producing force in the near future.

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Following the listing at $90 cents, it did not begin too well as the stock traded at 69 cents. A few weeks later, Tulla shares now trade at $0.57 a share.

Norseman Gold Project

Tulla Resources entered into a joint venture agreement with Pantoro Ltd. in May 2019. The Norseman Gold Project is a Tier 1 asset in a Tier 1 jurisdiction.

Tulla Resources holds 50% interest in the project and the other 50% is held by Pantoro Ltd. Norseman Gold Project was commissioned in 1935, with a production of over 5.5m ounces of gold in Western Australia. It comprises 150 near-contiguous mining tenements.

Pantoro South was required to fund $50m of expenditure to have its sole management control in the project. On 8th April 2021, Pantoro South had expended $50m of expenditure and with this an unincorporated joint venture was formed. The 7-year Phase One project life is expected to restart its operations in Q2FY 2022 with a pre-production capital expense of $89m, as per DFS released by Pantoro.

Norseman Gold Project has the below characteristics:

  • It is a 7-year Phase One project life.
  • The project will have an average production of 108,000 ounces per year, peaking at 119,000 ounces in the third year.
  • The initial production of the project is planned from mining centres at Cobbler, Scotia, Gladstone and OK Underground Mine.
  • The project has a Mineral Resource of 35.0Mt @ 3.8g/t Au for 4.24 Moz and an Ore Reserve of 602Koz, with a conversion cost of $22.53 per ounce from Mineral Resource to Ore Reserve.
  • The project has an impressive cash flow of $489m (pre-tax)
  • The project will have a low average All-In Sustaining Cost (AISC) of $1,292 per ounce that will enable high margin production.
  • The project, having 5-7 drill rigs on the site, will double the Ore Reserves from ~600koz to ~1.2Moz through 10,000 metres of additional drilling.

Tulla Resources’ focus is to bring the project into production to generate cash flow and provide geographical diversity to its portfolio.

Phase One Mining

Completion of the Phase One definitive feasibility study (DFS) for the Norseman gold project to an accuracy of ± 10% in October 2020 confirmed a long life, high margin project suitable for immediate progression to construction and then operations.

The Project will include construction of a new purpose built one million tonne per annum processing plant with three stage crushing and a ball mill for comminution and a standard CIL wet plant. Initial production is planned from major open pit mining centres at Cobbler and Scotia, and from underground at the OK Underground Mine. As production from Scotia transitions to underground, a third major open pit mining centre at Gladstone is established.

Phase One allows the project to start at a relatively low cost and plans to resume production in Q2 2022. The mining centre at Cobbler is going to start early to secure mill feed. Scotia and OK will produce most of the ounces in the first 4 years and Gladstone will ramp up in the 3rd year of production. Phase 2 work will ensure longevity of major ore sources. At Gladstone, no drilling has been undertaken in Phase One.

Tulla Resources’ short to medium term focus is to work with Pantoro to deliver on the DFS and to recommence production to generate cash flow as soon as practicable. At the same time, Tulla Resources is committed to identifying exploration targets and implement drilling programs to significantly increase the production pathway at the Norseman Gold Project and to seek to double the Ore Reserves.

Scotia Mining Centre

The Scotia Mining Centre is located approximately 25 km south of Norseman and was discovered in 1893. The historic production recorded from the Scotia mine via open pit and underground mining was 811,000 tonnes @ 5.9 g/t Au for 155,000 ounces. Scotia was actively mined from 1987 until 1996. Mineralisation at Scotia is hosted by a shear zone that transects the Woolyeenyer Formation. The geological environment differs from that at Norseman, in that the stratigraphy has been subjected to higher metamorphic grades. The Scotia Mining Centre hosts a number of Mineral Resource areas in close proximity, including the dominant Scotia Resource and smaller satellite Resources at Lady Eleanor and Free Gift. The area also includes several zones where high-grade mineral occurrences have not yet been classified within the existing Mineral Resource. Pantoro has an ongoing drilling program utilising multiple drill rigs at Scotia, planned to continue throughout this year.

The Scotia deposit is currently the largest deposit within the Scotia Mining Centre, and drilling has been focussed on infill and extension of the known mineralisation. The current Mineral Resource at the Scotia Mining Centre is estimated to contain 4.15 Mt @ 3.45 g/t Au for 460,000 ounces.

Pantoro has continued its drilling program during the most recent quarter, utilizing 5 to 6 rigs continually throughout the period. Drilling has primarily been undertaken at the Scotia Mining Centre, Mainfield, and Sailfish. Drilling at the Mainfield has returned several intersections of sheeted quartz veining, consistent with the known gold mineralisation at Norseman. On the 10th of May, Pantoro provided additional drill results from the Scotia Mining Centre where drilling has been focussed on infilling and expanding the existing Mineral Resource, for conversion to Ore Reserve status.

  • Drilling at Scotia has returned several deep high-grade intersections from both inside, and outside of the Inferred Mineral Resource envelope.
  • Infill drilling around and below the historic underground workings continues to increase confidence in the ongoing upgrade of Mineral Resource from Inferred to Indicated for subsequent expansion of Ore Reserves.
  • Drilling has confirmed two high grade lodes at the deepest level drilled to date which is over 400 metres below surface and remains open.

Gold Positioned Extremely Well

The highly sought-after metal was soaring at levels just below US$2000 an ounce. However, with several macroeconomic factors affecting gold prices, there has been a lot of pressure on the most valuable commodity in the world. With everything that is happening globally and the pandemic reaching peak levels in most countries, the gold price will always take centre stage.

Yes, gold is used as a hedge against inflation, but there is another macro-economic factor that affects gold prices even more so – Treasury yields. There is an inverse relationship between gold and interest rates. As bonds were sold off early into the year, the bond yields rose considerably and affected many sectors. Bond yields are essentially interest rates which determine how much interest you receive. Since gold does not give investors interest payments, the market usually jumps ship and sells gold for bonds. Gold prices have sunk 19% in the first quarter of 2021, but they have held up above the 20% mark – which signifies a technical bear market. Bets of a brighter economic outlook and fears over a spike in inflation and debt levels, prompted a bond sell-off and a dollar rally, raising the opportunity cost of holding bullion.

However, with further stimulus being introduced into the US economy and Feds across all developed markets looking to keep interest rates low in a bid to increase inflation and force economic recovery, the prospect for gold for the next 2-3 years is positive. Adding stimulus into the financial system counteracts the pressure added by the increasing bond yields on gold and as bond yields stabilised, the gold prices have started to rebound in the last few weeks.

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This week, Gold held steady near a 3-month high at around $1,830 an ounce on Tuesday, amid a weaker dollar, rising inflation expectations, and a retreat in Treasury yield. A disappointing employment report last Friday eased worries about the Federal Reserve reducing its massive stimulus program anytime soon, which, in turn, spooked investors away from the greenback. Meanwhile, median year-ahead inflation expectations in the US increased to 3.4% in April 2021, the highest level since September 2013. Investors now await US inflation data later this week to further gauge the country’s economic recovery. Aside from the economic indicators, the precious metal benefited from safe-haven demand stemming from the ongoing coronavirus crises as infection rates continue to accelerate in India.

The Numbers

Why is the outlook for gold important when the company is not producing yet? Well, Tulla will start producing soon, and most companies at this stage would have already hedged their gold prices to account for volatility. Tulla is however, completely unhedged and finds itself in a position where it will be able to completely leverage the gold price that is most certainly going to go up.

The Phase One DFS that Tulla reported was calculated on a gold price forecast of US$1900 an ounce. This was one of the reasons why the stock was also out of favour during the IPO. Back then, gold was still out of favour by the broader market.

Fast forward a few weeks and a few stimulus cheques, this gold price estimate is looking conservative. The next 3-5 years for gold is looking very bullish and it has also been evident in our recommendation of gold stocks in the last few weeks. In addition to the booming gold prices, Tulla comes with the below characteristics:

  • Strong balance sheet – A$65.2mn cash
  • Zero debt on the balance sheet for TUL
  • 1 million tonne per annum plant
  • Phase one – 100,000 metres of drilling carried over the next 12 months.
  • Added liquidity of $22mn on Tulla resources balance sheet.

Technical Analysis

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TUL is a newly established share and started trading not long ago on March 18th, 2021. TUL initial price was A$ 69 cents per share which is by the way the all-time high. Following the company’s IPO, the shares continuously dropped and found its floor at A$ 45 cents per share, losing more than 30% in just a few weeks. On a positive note, TUL recovered quite quickly back to A$ 60 cents per share before consolidating between A$ 50 and 57 cents price range. TUL price equilibrium revolves around the $A 54 cents level which coincides with the 38.2% Fibonacci retracement from the IPO swing low. The current short-term trend on the 1-hour chart exhibits a buildup of a potential price breakout of the key level of A$ 57 cents which is also the 50% retracement level. A clear breakout of the 50% retracement will eventually trigger a rally toward the next key resistance of A$ 60 cents and eventually the 64 cents which sits at the 78.6% Fibonacci level.

Key price levels

The key levels to watch are the 50% retracement level at 57 cents, the 38.2% level at 54 cents and the 23.6% level at 50 cents per share. TUL price equilibrium is currently acting as the near-term support at A$ 54 and 55 cents area. Strong support has been established underneath at 50 cents per share and if a break of this level occurs, a sell-off might take place which can drive the price down to A$ 40 cents per share. On the other hand, a clear breakout of the 50% retracement level at A$ 57 cents will bring the attention of the market participants which may spark volume and send the stock to the next resistance at A$ 64 cents.

Volume and momentum

Volume considerably decreases since the company’s IPO on March 18th with the 20-day volume average down by -85%. The price action remains neutral h in the near term, evolving in a range between A$ 50 cents and 57 cents per share.

Trade consideration

  • Tulla has been trading for a few weeks, hence, we recommend you remain cautious of the volatility involving newly traded shares. We are strongly confident in TUL to at least reach back to its initial price offering of A$ 69 cents per share. However, in the very short term, TUL might experience extensive volatility which can lead the share price to either retest its lows at A$ 45 cents or spike in a matter of days to A$ 1 per share.
  • Conservatively, our primary target price is above $A 64 cents per share
  • Secondary target price at $A 1.0 per share
  • Consider reducing exposure below A$ 47.5 cents
  • It is recommended exiting the trade below A$ 45 cents

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Tulla Resources has a Tier 1 asset in a Tier 1 location. They are scheduled to produce gold next year, at a time when inflation will be positively influencing gold prices. Given their unhedged position, it puts the firm in a position of strength. We recommend long-term investors a “Speculative Buy” given the early-stage nature of the company.


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