Well I spluttered my morning coffee all over my newspaper today...

Well I spluttered my morning coffee all over my newspaper today when reading this latest RED announcement. As best as I can calculate a card swap from the same deck of cards has been performed so as to emphasise the grandeur of going underground rather than open pit mining after Innocent Mistake #2 (the C & M period-pit floor flooding era followed by the east wall failure); which is not to be confused with Innocent Mistake #1 (tailings dam 4 failure due to embankment water saturation; yer they flooded it!); and they want to go underground after a track record like that!!! I'm not jumpin in; they drowned me & many others already!

Anyway I downed my coffee and did some calcs; and what I found could only be considered as and old card trick designed to confuse & bewilder onlookers.

The total Resource at Siana (Indicated & Inferred in OP & UG) is now 1,194koz (previously 1,319koz in 2014 without taking into account the small production to date see calcs in table below). The total Reserve is 181koz pending the Reserve from the conversion of the ‘new’ Resource for UG (previously 689koz total OP & UG Reserve). On the basis of previous conversion it is reasonable IMO that an additional 520-550koz might be added to the Reserve from the current UG Resource but at lower grades than previously reported (waste dilution).

The card switch occurs with the loss of gold Resource in the OP amongst other things. For example to reconcile on the Resource side: OP oz’s of 844koz (previous, 2014 RED AnnRept) less 490koz (now) add UG oz’s of 475koz (previous) less 704koz (now) gives a net loss of 125koz in the new Resource. Rather than there being an increase in the Resource (UG), the proposed mining method has changed on essentially the same oz’s (there has actually been a small net loss).

The switch occurs because of the reliance of mining the underground now that stability issues have been promulgated after the C & M period that have cut the OP life short.
IMO I thought the announcement was a little unfair to the uninitiated:

• That the new UG Resource was “more robust” based on the 10 geotechnical holes drilled (only one hole in the UG realm was reported with significant gold grades, SMDD-159 RED 11/01/15). No other resource drilling has been performed in the past few years.

• The new UG Resource is based on an interpretation at a 1g/t gold cut-off (previously 2g/t gold) bringing more very low grade tonnes into the Resource model.

• The effect is to lower the average grade of the Indicated to 5.2g/t gold (previously 6.8g/t gold) an effective decrease of 24% in the gold grade.

• But the one that must truly put this announcement into question is the statement on the first line… “52% increase in Indicated Resource”. A true card switch! Actually the total Indicated Resource for Siana stands at 987koz where it was previously 939koz, an increase of 5% not the 52% IMO was deceptively announced. And this is at the cost of losing 2.0Mt from the Indicated Resource category (from 10.2Mt to 8.2Mt); a 20% decrease in Indicated tonnes and a total loss from the OP & UG Resource of 2.9Mt (from 12.5Mt to 9.6Mt); a 23% decrease. The effect is to raise the grade of the overall deposit with the potentially mineable UG material, which has in turn a lower grade than previously reported.

• And what about the capital costs to go underground? With the reconciliation of the cash flows from the last Qtrly; $20.5m estimated outgoings, maximum $17m revenue (7-10koz @$1700/oz) and $8.6m in the bank (with another $8.7m in creditors from the last AR; Current Liabilities), the estimate for cash at hand at the end of this Qtr must be around $5.1m with current liabilities of $8.6m hanging over them (if RED got the expenditure estimate accurate: last Qtr they were 37% over budget and the previous qtr 47%). Do the math. Either a bank loan for the project including the UG (doubt if anyone will touch them after IM#1 & IM#2) or you are left with the dreaded CR words. IMO the rock stability and water issues could be a whole lot worse UG than they have been at the surface; but then again that’s only based on 30 years of mechanical engineering experience. Don’t invite me to the UG opening if it manages to get a thumbs-up! I’d be too scared!

Here's the math;