Red 5 Ltd (ASX:RED) has boosted its cash balance by US$19 million after completing the divestment of the historic Siana Gold Project in the Philippines.
The gold explorer and project developer, which is on the cusp of producing first gold at its King of the Hills asset in Western Australia mid-next year, will part ways with the Philippine asset in a deal with TVI Resource Development (Phils) Inc. (TVIRD).
The cash consideration forms one part of the divestment, which also leaves Red 5 with a 3.25% net smelter royalty for up to 619,000 ounces of gold, estimated to bring in a further US$36 million down the line.
It seems the royalty could bolster its bottom line in the not-so-distant future as TVIRD, which is the Philippine affiliate of the Canadian-listed TVI Pacific Inc (TSX:TVI) (CVE:TVI), is in the advanced stages of securing funding to restart Siana, which is expected to recommence operations in the first half of 2023.
Streamlining Red 5 portfolio
Speaking to the transaction’s closure, Red 5 managing director Mark Williams said: “Red 5 would like to thank TVIRD for a smooth transition during the divestment process, which has included securing all Philippines regulatory approvals.
“We look forward to maintaining a long-term relationship with TVIRD and wish them well with their plans to restart the Siana Gold Project for the benefit of all key stakeholders in the region.
“From a Red 5 perspective, the transaction streamlines our portfolio and removes the annual holding cost of approximately A$6 million.
“The divestment crystallises a combination of cash value for our shareholders while maintaining future exposure to the upside at Siana via a capped net smelter return royalty of 3.25%.
“I would once again like to thank everyone who has been involved in assisting us with this transaction.
“We are now well established on our growth trajectory to becoming a mid-tier Australian gold producer with the construction of the King of the Hills gold mine now in full swing and first gold production on track for the June Quarter 2022, complementing our nearby existing production base at Darlot.”
Managing director Mark Williams heads up the team working to bring King of the Hills into production.
Saying farewell to Siana
Siana has been a key part of the Red 5 story for many years, but was placed on care and maintenance in 2017 after regulatory uncertainty led to operational setbacks.
In that same year, however, the gold stock acquired two new assets: the King of the Hills (KOTH) Project and the Darlot Gold Mine near Leonora in Western Australia.
The domestic gold plays soon became a key focus for the Red 5 team, leading management to make a key decision for Siana’s future.
And so, in late July, Red 5 announced it would its final exit from the Philippines in a US$55 million divestment deal.
Now, that deal has been finalised and TVIRD is poised to take the reins.
The Siana Gold Project.
New era for Philippines project
Siana’s new owner has two operating mines and several other development projects in the Philippines with interests in gold, nickel and copper.
To secure the gold project, TVIRD will take full ownership of Greenstone Resources Corporation (GRC) — the Philippine company that holds Siana and the Mapawa Gold Project.
Through its major shareholder, Prime Resource Holdings Inc, TVIRD has advised that funding to restart Siana is expected to be sourced from existing operating cash-flows and debt facilities if required.
It’s targeting a restart of operations in the first half of 2023, exposing Red 5 to further upside under its royalty agreement.
The fine print
Under the divestment, Red 5 has received the US$19 million cash component through the repayment of outstanding shareholder advances due from its Philippine-affiliated company, Red 5 Asia Inc, which is a shareholder of GRC.
The Red 5 group has also snapped up a 3.25% net smelter return royalty, which covers up to 619,000 gold ounces.
This royalty comes into play from the first gold produced at Siana’s recommenced operations, while the royalty agreement’s projected value is modelled on a US$1,800 gold spot price.
PCF Capital acted as financial advisor to Red 5, while HopgoodGanim Lawyers and SyCipLaw Center made up the legal team.
Australia’s next mid-tier gold producer
With Siana now divested, Red 5 continues to advance its homegrown portfolio, which comprises the King of the Hills and Darlot gold projects in Leonora, Western Australia.
At the former asset, construction continues on the gold processing plant ahead of the project’s commissioning early next year.
Work continues at King of the Hills.
Once it enters production, Red 5 hopes to generate 176,000 ounces of gold per annum over the first stage of King of the Hills’ 16-year mine life.
This will take place at a comparatively low all-in sustaining cost (AISC) of $1,339 per ounce.
More broadly, the Leonora project is one of Australia’s most well-endowed gold projects, with its 2.4-million-ounce ore reserve base ranking the asset among the nation’s top 10.
With key development activities underway, the next chapter is right on the doorstep: commissioning at KOTH should kick off within the next seven months, while the first gold bar is targeted in 2022’s second quarter.
Once King of the Hills celebrates its first gold pour, it will establish Red 5 as Australia’s newest mid-tier gold producer.
