He was talking about Red 5 (ASX:RED) and Calidus (ASX:CAI), and suffice to say, the strategy backfired big time.

In the January 22 article Red was trading at 26c for a market cap of $600 million and Calidus was a 69c stock for a market cap of $278m. For a time they did trade higher in response to gold climbing above $US2000/oz.

But here we a little more than year later and Red is back at 14c for a market cap of $450 million, and Calidus is back at 23c for a market cap of $101 million.

The only saving grace from a reputational point of view is that Garimpeiro did warn the strategy only worked if the new gold mines lived up to expectations.

Their miserable share price performance since commissioning their mines – Red’s King of the Hills (KOTH) mine near Leonora and Calidus’s Warrawoona project near Marble Bar – tells us the new mines did not start off with a bang.

Having said all that, Garimpeiro has been wondering if the sell-off rather than the re-rate of the pair has been overdone, particularly as their operations seem to have turned the corner in recent months.

Both have low-cost and strategically important treatment mills which came in on time and on budget which was no mean feat during what was an inflationary/COVID/skills shortage affected WA mining market.

So they have operating nous. And both have recently reported improvements in key mining/processing metrics which if continued, could well lead to a substantial market re-rating.

The lesson for Garimpeiro is that next timed he is watching a developer transition to a producer, he should wait until the project has at least two quarters under its belt before getting excited about the re-rate potential.

RED: The company poured its first gold from its 4.7mtpa mill at KOTH in June last year. Production has lagged expectations due to it taking longer than forecast to get into higher grade material.

KOTH was promoted as capable of carrying Red from a 60,000-70,000 ounce a year producer from its Darlot mine (its ore is now processed at KOTH) to 200,000 ounces a year from FY2023.

December half production was 63,000 ounces but Red has forecast output will climb to 90,000-105,000 ounces in the current June half at an all-in sustaining cost of $A1750-$A1950/oz.

Should that be achieved, Red will be at a 200,000 ounce a year run rate, with spare capacity in the (expandable) mill a wild card for more production still.

Smarter people than Garimpeiro must reckon that Red is on its way as they have recently kicked in $80m in an equity raising at 13.5c to “support steady-state operations at the newly commissioned KOTH mine and the balance sheet flexibility to accelerate future investment in production and mine life growth.’’

Red could also be a key player in the consolidation of gold production in the Leonora region. Genesis (GMD) and St Barbara (SBM) are in the process of merging but some pundits suggest that there is no real consolidation without the low-cost KOTH mill being included.

CALIDUS: The company poured its first gold at Warrawoona in May last year. It has been working on improving grade reconciliation and expects costs to reduce as the strip ratio steps down.

Early on the market was looking for annual output of about 90,000 ounces although the company said 80,000 ounces was the initial target. It is on improve, with guidance for the current June half of 31,000-36,000 ounces.

The plan to add in higher grade underground production and develop the satellite Blue Spec deposit as a very high-grade source is still intact. Achieving both would carry annual output to 130,000 ounces.

Calidus probably needs to raise some equity funds before long to get there but with the potential to reduce life-of-mine costs on an AISC basis to $A1700-$A1850/oz, there should be plenty of support.

Calidus also has a wild card – lithium in the broader region which is home to Pilbara Mining’s Pilgangoora monster. Early stage exploration has been encouraging.