conversation with ge, page-25

Don't know if you have read this already - $3.20 PT

Expect A Much Better 1H FY13
After Jun Qtr Fell Short Of Targets
Investment Perspective: Material handling issues have plagued
the Siana operation throughout the commissioning and ramp up
period. This begs the question, was commercial production
declared too early? The Company almost admitted to this in their
June Quarter report, which showed gold production falling well
short of targets.
The construction of causeways in the open pit should now allow
the removal of the remaining silt to be undertaken in stages, with
increasing ore volumes expected from mid-August onwards. We
continue to see a successful ramp up towards steady state in early
1H 2013.
Should RED resolve its material handling issues, and meets its
guidance for FY13, we continue to believe that the shares could
offer a significant re-rating opportunity. We maintain our
SPECULATIVE BUY recommendation.
Silt removal behind timetable – declaration of commercial
production premature?
The removal of remnant silt in the open pit following dewatering
continued to impact mining volumes throughout the period, so
much so that the plant didn’t operate for extended periods due to
lack of ore feed. This in turn impacted gold production, which came
in 63% below guidance at only 2,734 oz. This would suggest that
the declaration of commercial production in late April was perhaps
premature.
Encouragingly, operation is cash flow positive with mining
volumes set to increase in August/September
Despite the lower gold production, the operation is cash flow
positive, with revenues for the period at $4.34m versus direct
operational expenditure of $1.785m. Net cash costs came in below
estimates at $674/oz. Increasing volumes of ore are expected from
mid-August following improvements to material handling.
FY13 guidance maintained at 75,000 oz at costs of $340/oz
With ore volumes and gold production expected to improve over
the next few months, the Company has maintained its production
estimates for FY13 at 75,000 oz. At this stage, we see this as
achievable provided mining volumes demonstrate marked
improvement.
Funding is tight but Sprott facility provides a backup
Reported cash at period end was $13.5m with the payment final
close out costs of $6m now deferred. While the funding position is
currently tight, improving gold production and cash flow from mid-
August, combined with an undrawn debt facility of $8m should see
the Company through.
SPECULATIVE BUY and target price of $3.20 maintained
We have made some minor adjustments to our FY13 production
estimates to 73,727 oz (previously 74,861 oz), but this has a
negligible impact on our net asset value, which stands at $434m.
Based on a 1.0x P/NPV multiple, our target price remains at $3.20
per share.