Quarterly comments

For me the quarterly was a little disappointing with costs and particularly capex being too high. However when you dig down the result is actually very encouraging.

High costs appear to be a transitional issue with both mining and processing costs to come down significantly. On the mining side there is the issue of rehandling and moving silt, both of which negatively affected productivity. I suspect the current quarter will have some carry over with the drain construction but we should see costs move back towards the $4/t level progressively.

Processing costs should also move back to the the $20/t level too, particularly if they can eliminate tailings cementation - something that is overkill in my opinion. Better use of grid power will also help processing costs a lot.

Even just adjusting the reported AUD$809 cash cost for the grade being 2.6g/t to say 3g/t and boosting recovery which results from higher grade to say 86% would take costs /oz back 20% to AUD$677/oz. This is quite a good outcome for $6/t mining costs and $31/t treatment costs both of which should come down considerably.

With the mill at only 60% of capacity, I think recovery could easily be boosted 3-5% irrespective of grade relationships - just taking the grind size down should do this.

I noted that the cash flow report had op costs and overheads at 6.6 and 1.1 for a total of $7.7m. Per oz produced this is actually only 7.7/0.011 = $700/oz.

So the real issue is the cost of excess waste removal which accounts for the bulk of the $9.8m capex for the period. Basically what is happening is because the mine life is quite short, most of the stripping is being front loaded into the current periods so cash flow is tighter now relative to later when ore is accessed from the waste being removed today.

Its quite a big number for waste removal for the quarter - 600k bcm = 1.5 million tonnes or something (limestone SG = 2.6). That's a lot of material. It also explains why getting mining costs down and finishing the drains / settling dams will make a really big difference to cash flows.

I think the key point is that despite Red having to work really hard on getting the pit in order and delivering on a restart with teething issues, the outcome was quite positive really because most of that work will not have to be repeated.

It was great to see 20% of slump material already removed too. And also as I suspected the potential for there to be grade in the region of the slip looks high. My guess is that the underlying reason for the original failure slip was probably faulting through those zones - this area is the key siana shear. Faulting and shearing mean weaker rock and these areas are natural conduits for water too. This is the bad news we all know about. The good news is that faulting and shearing is what creates mineralisation and so this zone is about as prospective as one can get. So ther is genuine reason for optimism.

So in conclusion, whilst I'd have liked to see better, I feel more comfortable with the situation and the outlook and think we will see some very good numbers to come. The 40koz guidance looks way low and probably factors in no new ore and a big cutback, so I'd be very surprised if they only deliver this.