Red 5’s rejuvenation of ‘second-hand’ King of the Hills reminiscent of Northern Star, Evolution and Saracen

Barry thinks RED has similarities to SAR, NST and EVN .... and note his last comment .... currently RED is the standout for SP appreciation amongst producers .... inclusion in the GDXJ will drive institutional buying (as did inclusion in the ASX300) and the road show to Nth America and Europe will be full on for the next 4 weeks .... more buying to come .... finally shareholders grip on their shares is tightening .... all these insto's aren't buying for a 20% return .... must be eyeing at least 100%+ ??

And speaking of red, US investment firm Bernstein is the latest to predict the red metal is about to get red hot.

18th September 2020

Barry FitzGerald

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Lots of gold deposits will support a new mining operation for the next 5-7 years or so thanks to gold’s elevated price levels.

But few of the newbie operations - and lots of the established operations – will be around in 10 years, let alone 15 years.

A long life has important valuation implications. If it comes with embedded production upside, all the better.

That’s a position that the psychologically-named Red 5 (RED) has established for itself with this week’s release of the final feasibility study (FFS) in to a stand-alone $226m bulk mining and processing operation at its King of the Hills (KOTH) project in WA’s Eastern Goldfields.

Based on an updated ore reserve of 64.6Mt at 1.15g/tonne for 2.4M ounces, the study covered an initial 16-year operation producing at an annual average of 146,000 ounces (176,000 ounces in years 1-6), with life-of-mine AISC of $A1,415oz (about the current industry average).

A final investment decision is likely before the end of the year, with first production possible in June 2022, remembering the existing operation at KOTH – which winds down for the bigger and better new project towards the end of this year - sends its ore 80km down the road for processing at Red’s Darlot operation.

KOTH and Darlot were picked up from Saracen and Gold Fields respectively in October 2017 and were considered pretty much clapped out. Red saw a brighter future for the operations, which is more than can be said of what was its previous mainstay, the Siana project in the Philippines.

Siana fell victim to the country’s anti-mining sentiment. Red could have sooked and gone on to spend an eternity trying to get clearance for a Siana return. Instead, it made the well-timed pivot in to WA gold.

It hasn’t looked back, particularly at KOTH where a new understanding of its granodiorite intrusion geology has quickly established a 4.1M ounce resource base which remains open at depth and along strike.

The 2.4M ore reserve used in the FFS is big enough alone to rank KOTH as Australia’s eighth biggest gold deposit on a mining reserve basis.

So it can be said that Red has enjoyed remarkable success in turning KOTH in to something worth having, reminiscent in many ways to what the likes of Northern Star, Evolution and Saracen have done with their own acquisitions of “second-hand’’ mines in recent years.

There is a way to go before Red takes its position as an ASX mid-tier gold producer of 250,000-300,000pa from a couple of mines come 2022. But now it is on that pathway, a re-rating is in the offing.

That should get going in earnest once the $165m in debt funding for the project is pinned down towards the end of the year, with Red having already covered the equity requirement earlier this year in a milestone capital raising.

A flavour of the re-rating potential came through in analyst assessments of the KOTH FFS. Morgans set a price target on the stock of 52.4c. Petra Capital was higher at 55c, while Canaccord was the lowest at 50c.

Those TPs compare with Red’s 36c price on Thursday. Trying to find as much implied upside in any of the other Aussie gold producers at the moment is a fruitless exercise.