I hear what you are saying xmanrocks. So we get an announcement...

I hear what you are saying xmanrocks.

So we get an announcement of around 34,000 ounces for the first half.
It would be nice to know what the AISC is, but I'm now expecting it to be above A$1,500.
Not much profit there, it at all, hence the A$5 million draw down.

We are told the second half should see an increase in production, but no real conviction in the tone, except the words "expected to increase", with the proviso that this will be somewhat dependent on " ... reducing unplanned dilution ... ".

The word "unplanned" can be problematic. It hints at them possibly having found gold grade dilution that they were not expecting, hence the reason for just 15k/oz in the June quarter.

The question remains, have they hit the higher grade sulphide stocks, and if so, is it as high as they "expected". And if not, how can they cope with this dilution, and will this grade dilution affect the AISC going forward into FY2020? It looks like they are working hard on finding solutions.

In a sense, this release raised more questions than it answered.

The chart shows the revised Barton's stopes enabling just over 900 ounces per week in weeks 22 to 26. Let's be a little conservative then and say 900 x 52 weeks = 47,000 ounces. If you view the Sept 2018 presentation by the CEO, he states the additional sulphide component should allow them to reprocess the sludge and retrieve another 50% to 60% from the remaining. Again let's be conservative, with 50% of 47,000 = (approx) 24,000 ounces. But this is only giving us a recovery rate of about 75% overall, which is not bad for refractory ore, but using the Leachbox Aaechen process some African gold companies are getting nearly 80% to 85% on difficult refractory ore.

47 + 24 = 71,000 ounces, as an estimate for FY2020 production, though at what AISC.

They need to get rid of the hedge.

I'm going to cut them a bit of slack and estimate that FY2020 production may reach 80,000 ounces with a bit of tweeking to the sulphide component, and presuming they overcome or do not encounter many more unplanned grade dilution problems. This would be a good result.

Based on these figures, I think their estimates of 110,000 ounces production for CY2020 is looking problematic at best.

The announcement certainly gives the impression that they are dealing with a number of unknowns at the moment that are hard to predict. The best course for them is to be honest and explain these, as they have done to a degree in this announcement, although you may need to read the announcement closely to discern all of these, and perhaps a little bit between the lines.

Successful exploration over the coming year may be the key. And perhaps they might consider thinking about some M&A activity in the region. For the company to move forward substantially, they may need to somehow pick up another gold project that has very simple convention ore processing potential at a low cost - easier said that done. Some say fortune favours the brave, RED5 is a testament to that.

Gw