As I mentioned on 25/5, RED's performance over the past 12 months hasn't been too flash. Investors in the stock are hoping that results for Quarter to 30/6/23 will provide an impetus for the share price to start to reverse the decline we've seen over the past 12 months. Traders, I guess, are hoping the share price just continues to bounce around so they can continue doing what they're doing.
The March Quarterly Report showed an AISC figure of $2,055 per ounze for the quarter. If managements guidance of an AISC of $1,750-1,950 for the current half year is to be achieved, the AISC for the June quarter will have to be no higher than $1,850 per ounze. However, in the March data, when calculating costs, RED included a "credit" of $20.64m for Ore Stockpile Movements. How this element washes through the AISC figure for the June quarter isn't clear to me but I'll be fascinated to see how it does.
Notwithstanding this, the March Quarterly Report fully outlined hedging commitments, and in light of these numbers, it's interesting to calculate what potential revenues and profits RED could be achieving post 30/6/23.
If we assume the business can produce and sell about 210,000 ounzes a year, and that deliveries under spot prices can be achieved at AUD$2,750 per ounze, then RED's revenues from gold sales could reach $530 million in FY 23/24 and $550 million in FY 24/25.
If AISC can be contained to $1,950, margins generated would be $120 million and $140 million respectively. For each $50 reduction in AISC below $1,950, (this figure is managements upper forecast for the current half year and will hopefully be lower from now on) RED's margin would increase by about $10 million p.a.
Clearly, these margin estimates don't take into account corporate costs or taxation expenses, but they do suggest that if all goes to plan production wise and grade recovery wise, and if the AUD gold price holds up at around $2,750, RED will be operating a pretty impressive business in the near term.
This mightn't be much comfort for short term holders but for devotees of the Ben Graham investment approach (accepting that Mr Graham wasn't a big fan of cyclical type resource stocks), RED seems to be a stock which ticks a lot of boxes for the medium/long term (and patient) investor.
RED Price at posting:
14.5¢ Sentiment: Hold Disclosure: Held
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