Missing the big picture - massive upside

You guys are so off course on this board - full of bearishness when this is an outstanding opportunity.

Red 5 had a pretty mixed management team historically but they still built the mine within the budget ballpark. Early operating was not great either but restarting an old pit is always tricky.

They did get very unlucky with the tailings wall crack however.

Effectively that cost them $50m to fix and get re-started.

So today we have a circa 3 g/t open pit with lowish strip ratio and soft material with a prove 1 mtpa processing plant and connected grid power for $63m market cap with another $15m or so of cash on top - $48m enterprise value (vs $200m+ cost to build).

Less than 5% of historical reserves were mined and the reserve grade at 2.8g/t looks low versus the previous 3.4g/t estimate (see old annual reports).

Once the final teething issues get fixed this mine will produce 70-80kozpa at very low cash costs (Aud$500-600). Forget the total cost because that includes sunk capital.

There is $5m of corporate overheads a year and $6m of sustaining capital on top of cash costs.

So cash margins today are circa AUD$1000/oz - on 70koz a year that equates to $70m. Not much tax to pay either given the history.....

So how much free cash flow comes out? $40mpa $50mpa or more maybe - at spot (depressed) gold!!!

So here we sit with this thing close to generating its market cap in cash flow moving forward and no debt and people are just focused on the risks!!!!

Seriously.

An old annual report said US$250m pretax npv at US$1000 gold (2011 maybe?). This included the cost to build which has now been done. Ballpark, tax offsets the build cost so the theoretical NPV is circa US$250m at US$1000/oz. So maybe that was optimistic right? But gold today is $1200/oz which leaves a lot of margin for error. And yes based on the fact this can generate nearly $50m pa of cash, AUD$300m also makes sense.

This thing has huge exploration upside - we dont even need to talk about that because the base case valuation is AUD$250-300m - 33-40 cents a share.

Yes still some risks but these are tiny compared to what the company has been through and the new team seems so much better than the previous team too.

The worst thing about this company is the excessively bearish posters on hotcopper...........