Ann: Strong Quarter Underpins Acceleration of Debt Reduction, page-21

Red 5 Limited (RED) - KOTH doing its thing (Petra 6/10/23)

RED has reported another strong quarterly production result from its King of the Hills operation (KOTH). Gold output of 55koz in the SepQ was 2% ahead of our estimate of 53.8koz, however gold sales of 54.4koz were below our 56.3koz which had assumed catch up from low sales in the prior quarter. The grade streaming strategy continues to be advantageous, allowing higher grades to be processed to compensate for lower mill throughput due to unplanned crusher downtime. We continue to see the top-end of FY24 guidance being achieved.
The balance sheet continues to improve, with free cash flow of $13.7m allowing $15m debt to be repaid, including a $10.8m voluntary payment;
a further $10m payment is scheduled in December bringing net debt down to $56m by end CY23.
With this ongoing strong performance, KOTH remains a prized asset in a highly strategic region undergoing consolidation.
Maintain BUY, PT of A$0.34/sh (unchanged). Our spot valuation is $0.52/sh.

Another solid quarter at KOTH

• Gold output of 55koz, sales of 54.4koz (Petra: 53.8koz and 56.3koz respectively). Prod’n is 3,369oz ahead of sales over the last 2 qtrs, with sales anticipated to catch up, potentially providing an A$8-10m cash boost
• Mill throughout of 1.23Mt was below our 1.4Mt estimate after unplanned crusher downtime
• Milled grade continues to outperform, with 1.49g/t above our 1.25g/t forecast; it appears grade streaming was utilised to compensate for lower mill throughput
• Full production and cost data to be provided in the quarterly and investor call on 18^th October
• Well placed to deliver to FY24 guidance of 195-215koz at A$1,850-2,100/oz AISC, which remains unchanged (Petra: 215koz at A$1,889/oz)

Free cash flow allowing accelerated debt reduction

• Free cash flow of $13.7m was generated in the quarter, allowing $15m debt to be repaid, including $10.8m voluntary payment; a further $10m payment is scheduled in December 2023
• Cash & bullion of A$44.6m, debt of A$112.6m
• We estimate net debt of $68.2m to reduce to $56m by end CY23 and just $8m by end FY24
• RED aiming to refinance the remaining project finance facility during CY24 into a corporate/revolver facility

Key Dates Ahead

• 18^th Oct – full Sep.Q ’23 report
• 2H CY24 – debt refinance into corporate facility