Project could crown Red 5

It’s been nearly two years since Perth-based gold miner Red 5 surprised the market by abandoning its operations in the tricky mining jurisdiction of the Philippines to focus on WA (reports The West Australian).
31st May 2019
Resources Rising Stars

It’s been nearly two years since Perth-based gold miner Red 5 surprised the market by abandoning its operations in the tricky mining jurisdiction of the Philippines to focus on WA (reports The West Australian).

In what looked a risky and ambitious bet 18 months ago, the company acquired the ageing Darlot mine near Leinster from South African giant Gold Fields and the historic King of the Hills project 80km to the south from Saracen Mineral Holdings.

Considering them non-core and of little value, Gold Fields and Saracen were happy to discard the assets for relatively small cash and scrip payments.

Red 5 had earlier suspended operations at its Siana gold mine in the Philippines after running into permitting problems with the country’s government.

Instead of wading through long negotiations and complex regulations to restart the mine, the company opted for a complete transformation.

Picking up historic assets can be an exercise fraught with danger but it’s a well-worn path in the WA gold sector.

And many a project that has been one company’s refuse has proved another’s redemption.

Red 5 hot-seated into the operating Darlot mine, immediately resuming its status as a producer.

Ore trucked from underground at King of the Hills has supplemented the 1Mtpa mill at Darlot, keeping it operating at full capacity.

The company expects to produce just over 100,000oz this financial year and end the June quarter in cashflow positive territory, a fair achievement in just 18 months.

But it’s the recent exploration results and production potential of the King of the Hills project that has caught the eyes of investors.

Red 5 this week lifted its resource at the project to 66 million tonnes at 1.5 grams per tonne for an impressive 3.1 million ounces, with 76 per cent of that in the indicated category. That’s up from a 402,000oz inventory when it acquired the project.

The company will keep the rigs running as part of a 30,000m drilling program targeting underground extensions and satellite targets from surface.

It is simultaneously working on a pre-feasibility study examining the possibility of establishing King of the Hills as a standalone operation with a 2-4Mtpa processing plant.

Managing director Mark Williams attributes the revised outlook for King of the Hills to the company’s fresh understanding of its mineralogy and improved gold price.

King of the Hills has had a stopstart history of mining since the 1980s under previous owners Sons of Gwalia, St Barbara and most recently Saracen, producing about 1.65Moz over its life.

Meanwhile, Darlot has had a 30-year history of continuous operation under Homestake, Barrick, Plutonic and most recently Gold Fields for total production of 2.8Moz. And Red 5 is confident of finding more gold at Darlot to sustain its operations and expand its resource of 680,000oz.

With $13.5 million in the bank at the end of March, the company has no plans to raise extra cash soon. Continued news flow from its drilling is anticipated with the pre-feasibility study expected next quarter.

The company has also resolved permitting issues around its Siana mine in the Philippines, with a possible sale of the asset likely to unlock latent value.

The endgame for Red 5 is to join the ranks of mid-tier gold miners with two standalone operations collectively producing about 250,000oz a year.

Hartleys this week lifted its 12-month price target to 20¢, which compares with Red 5’s closing price of 13.5¢ yesterday.

However, the broker also cautioned that the company has more work to do to shore up the economics of King of the Hills.

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