Spectulator, The answer to your question is cash generation. In...

Spectulator,

The answer to your question is cash generation. In the last quarter Red lost $2.5m of cash.

Lets put this in perspective - they sold 10.5koz but produced 11koz - there's 750k difference to start upfront.

So adjusting for sold versus produced only 1.75m went out the door.

Grade was 2.6g/t versus 2.8 reserve and recovery was 83 versus 86 at the reserve grade. so production at 2.8 versus 2.6 would go up 2.8/2.6-1 = +7.6% = another 836 oz production (now 11,836). Recovery up from 83 to 86 adds 86/83 - 1 = 3.6%. On the higher ozs (11836) this equates to another 426ozs. So now we are at 12262oz of production. Oddly this is the midpoint of their guidance.....

So we have an extra 1126 ozs of production versus the prior quarter - this is $1.7m of revenue at A1500 gold.

So just adjusting cash flow back to the reserve grade (which they have announced they are outperforming) and for actual production they would be breakeven on cash.

Now onto costs which are way high for the quarter - ore mined 190kt, waste 600bcm at 2.6 sg = 1.56mt. Total movement of 1.75mt (strip ratio = 1.56/0.19 = 8.2). Mining cost of $6/t should be $4/t (or lower according to holdon). Lets use $4/t. This saves 1.75*(6-4) = $3.5m.

So now the quarterly cash flow is +$3.5m or $14mpa!!! Just simply through producing the reserve grade and associated recovery together with getting mining costs to levels which are still high for asia.... Nothing for all the other factors which can improve........

So on the above very basic maths - funding underground of $25m over perhaps 12-18mths in perhaps 18 months is actually very doable.

Remember my maths assumes mill costs remain at the prior quarter of 31/t which is a very high rate and the strip ratio of the quarter remains at 8.2 versus a current life of mine 5. We know mill costs will decline and the strip ratio will fall at the end of the mine life, so cash generation moving forward will be higher than my numbers for both those reasons.

I also believe grade will be much better than 2.8g/t (more like 3 g/t or more) - again this adds more cash on top yet again.

Also remember the mill is rated for 1.1mtpa not 760ktpa so production rates should rise there too - again more cash.

Finally, the last quarter was still very much a restart period with all the extra costs and inefficiency associated with it - how much will these fall? A bit I suggest.

Most of the numbers work on a multiplier too, so $3.5m a quarter can quickly go up to $5m a quarter or $20m a year

So what we know is some very basic improvements will lead to much better cash generation and the amounts will likely allow a very easy funding of the underground.

I know people hate debt, but even with modest cash generation some debt support is possible - this is another angle that wouldn't lead to more equity dilution.

AND IF GOLD PRICES RISE A LOT? - like I think they will...... Cash generation becomes huge, really huge.

Remember this mine was planned to do around 80koz a year - nearly double the numbers I work with. If they got this mine humming at better gold prices, it could produce the current market cap in cash in a year quite easily......