Red 5 Ltd (ASX:RED) is on track to join the list of Australian mid-tier gold producers in 2022, as its King of the Hills Gold Project in Western Australia nears commissioning.
King of the Hills (KOTH) forms one part of a promising picture at Red 5, with Canaccord Genuity (TSX:CF, LSE:CF) maintaining its speculative buy rating on the back of the company’s strong September quarter along with a price target of A$0.35.
This week Red 5 released its September quarterly report, outlining progress at KOTH and the production of 16,377 ounces of gold at its Western Australian gold operations.
Successfully busy
Red 5 managing director Mark Williams said the company was firmly on track to continue its growth trajectory to become a mid-tier Australian gold producer.
"The September quarter was another busy and successful period,” he said. “Most importantly, we continued to make substantial progress towards the construction of our new 2.4-million-ounce, 16-year life-of-mine operation at KOTH, with key developments during the September quarter.
"Considering the current rising cost environment in the WA resources sector and the tight market for labour and services, we are in a great position with the majority of our long-lead items already on site.
"During the quarter, we were able to showcase the project to the WA Minister for Mines and Petroleum, Bill Johnston MLA, together with a group of key stakeholders including representatives of the traditional owners, our construction partners and leading Australian media.
"In future, the KOTH Processing Hub will be fed with three ore sources – the KOTH open pit, KOTH underground and Darlot underground, further de-risking the KOTH ramp-up and also alleviating labour force pressures.”
Canaccord rating steady
Canaccord has maintained its speculative buy rating for Red 5, with a price target of A$0.35, a premium of 30% to the trading price of A$0.27 on Thursday.
The analyst pointed to the potential of KOTH, with support of Darlot, as the reasons for its confidence.
“We remain of the view that within the context of the recent strategic review, Darlot has merit in the bigger picture,” it said.
“As a reminder, RED plans to transition Darlot into a satellite ore feed for KOTH once construction of the new plant is complete.
“The additional ore is expected to combine with the existing KOTH planned throughput, with studies showing that 4.7 million tonnes per annum rates can be achieved.
“Benefits include the ability to transition non-mining personnel to KOTH to de-risk the ramp-up, the introduction of an additional work front increasing operational flexibility, and higher production from increased throughput and the addition of higher-grade ore feed to KOTH.
“Further logic for maintaining Darlot in operation include the deferral of closure costs, supporting a production outlook at ~200,000 ounces pa once integrated with KOTH and maintaining future exploration potential once cash flow becomes more available post-KOTH ramp-up.
“Red 5 is comfortably funded assuming Darlot remains break-even or cash flow positive.”
September quarter progress
Development at KOTH is tracking within budget and on schedule, with Red 5 aiming to deliver first gold production in the June quarter next year.
The build of the project is now two-thirds complete, with all semi-autogenous grinding (SAG) mill components delivered to site, sole plates in place on the foundations and the installation of the mill shell, motors and girth gear underway.
Construction of the administration building is complete and the maintenance workshop and warehouse aren’t far behind.
As previously reported by Proactive, the underground and open pit grade control drilling has commenced; the initial 70,000-metre drill program is targeting the gold play’s southern pit.
Darlot production up
Red 5’s Darlot gold mine produced 16,377 ounces of gold, up 7% on the June quarter, and sold 15,922 ounces, up 9%.
It recorded quarterly costs of A$2,686 per ounce of gold, making more money per ounce than in the June quarter.
It has forecast gold production of up to 72,000 ounces for the 2022 financial year at an all-in sustaining cost of up to A$2,400 per ounce.
The company is also planning to transition the Darlot underground mine to become an additional medium-term, high-grade feed source for the new KOTH processing plant from June next year, enabling a step-change in Darlot's production cost.
King of the Hills resource increase
Red 5 updated the indicated and inferred mineral resource estimate for KOTH to 90.7 million tonnes at 1.4 g/t gold for a total of 4.12 million ounces of contained gold - a 1.2% increase.
The indicated resource sits at 69.6 million tonnes at 1.4 g/t for 3.03 million ounces of contained gold (73% of total ounces), available for potential conversion to ore reserves.
There has been a 130,000-ounce increase (19%) in contained ounces within the underground component of the mineral resource following the completion of 33,088 metres of underground drilling.
Goodbye Siana, hello cash
Red 5 also waved goodbye to its Siana Gold Project in the Philippines, picking up US$19 million during the quarter in return.
It maintains a net smelter return 3.25% gold royalty from Siana with an estimated future face value of US$36 million based on a US$1,800 per ounce gold price.
The company has A$67.5 million in the bank.
- Daniel Paproth