By Elisha Newell | Proactive | September 6, 2021 10:40

A homegrown gold producer is just months away from commissioning Australia’s next major gold mine. So, what’s the story behind this developing asset and how has Red 5 emerged as the dark horse of the Eastern Goldfields?

For centuries, Australians have been captivated by the gold underneath our rugged red earth.

 

The very first gold rush, which kicked off in the mid-1800s, lured prospectors from far and wide who dreamed of discovering the precious metal and taking home a piece of glimmering history.

More than just a flash in the pan, the rush marks the start of Australia’s longstanding relationship with gold exploration and discovery, a pilgrimage for gold stocks that one day hope to move to producer status.

Fast forward to today, and for a business that’s developing one of the country’s top gold projects by ore reserve, that story is far from fantasy.

Red 5 Ltd (ASX:RED) is the dark horse of WA’s Eastern Goldfields, an established producer that’s preparing to its pour first gold bar at its aptly named King of the Hills asset next year.

Ultimately, the company’s story is one of exponential growth — it kicks off with two underloved gold projects, bought in 2017 for a combined lowly $34 million, that now boast a combined net present value of more than $1 billion at today’s gold prices.

And so, with the first gold bar from the relaunched King of the Hills now in reach, where does Red 5’s story go from here, and who is the team behind this ever-evolving asset?

The story starts with Siana

It might surprise investors to learn that the Red 5 story begins beyond WA’s gold-rich earth.

Instead, this is a tale that begins on another continent entirely, at the Siana Gold Project in the Philippines.

The producing asset was part of the Red 5 portfolio for many years but went into care and maintenance in 2017 after regulatory uncertainty led to operational setbacks.

In that same year, however, the gold stock acquired two new assets: the King of the Hills (KOTH) Project and the Darlot Gold Mine near Leonora in Western Australia.

The domestic gold plays soon became a key focus for the Red 5 team, leading management to make a key decision for Siana’s future.

And so, in late July, Red 5 made its final exit from the Philippines in a US$55 million divestment deal for Siana that should finalise over September.

Speaking on the project, Red 5 managing director Mark Williams said: “It was a really rigorous process — both domestic and international companies were engaged, and we found a natural buyer.

“We’ve been able to secure an excellent outcome for our shareholders with both a cash and royalty settlement.

“We wish the new Filipino owners the very best of success.”

While an incoming US$19 million cash payment will immediately bolster the ASX-lister’s bottom line, it’s a hefty 3.25% net smelter royalty — valued at US$36 million based on a US$1,800/ounce gold price — that makes up the bulk of the deal.

As a result, gold production at the Philippines asset will continue to pay dividends in the years to come while Red 5 works across its Australian portfolio.

Where King of the Hills leads …

Since acquiring the KOTH and Darlot projects in 2017, Red 5 has spared no time realising their potential.

Ultimately, the buy delivered two mines in one of the world’s most lucrative gold districts, with more than 2,500 square kilometres of land to prospect.

One aspect that sets KOTH apart from its peers is its sheer size. The gold project hosts a 4.12-million-ounce mineral resource and a 2.4-million-ounce ore reserve, firmly establishing the asset as one of Australia’s largest gold plays.

The project also boasts substantial scale, with the gold resource remaining open along strike and depth, leaving considerable exploration upside for the years to come.

Once it enters production, Red 5 hopes to generate 176,000 ounces of gold per annum over the first stage of the asset’s 16-year mine life at a comparatively low all-in sustaining cost (AISC) of $1,339 per ounce.

Excitingly, production is right on the doorstep: commissioning at KOTH should get underway within the next eight months, with the first gold bar targeted in 2022’s second quarter.

Commenting on how Red 5 hopes to capitalise on the project’s potential, Williams said it’s all about winding back the clock.

“Like any good project, it’s all about teamwork.

“We’ve been thinking differently about King of the Hills compared to the more recent owners.

“We’re looking to turn the clock back to 2004 and restart the open pit as a bulk enterprise.”

Currently, the team is hard at work to prepare the site for operations, while a debt funding agreement with banking giants Macquarie, BNB Paribas and HSBC has ensured Red 5 is fully funded to production.

At the end of July, the cornerstone asset began to take shape as it passed its 50% completion milestone, while the project remains on schedule and within budget for production next year.

In an ASX announcement, the MD said: “The countdown is now well and truly on towards project commissioning and first gold from Australia’s next major gold mine in the June quarter of 2022.”

… Darlot sure to follow

Although King of the Hills is key to Red 5’s production strategy, it’s not the only WA gold project on its radar.

In fact, KOTH’s sibling is a revered precious metals asset with a longstanding history.

With 33 years of gold production under its belt, Darlot remains a force to be reckoned with. And soon, its own gold resources will feed the ore-hungry KOTH mill.

Williams stated: “We have a significant inventory at Darlot, but the challenge is to unlock that inventory.

“That’s why we’re taking this two-pronged approach, to take advantage of the low processing costs when we can process the ore cheaper and more efficiently at King of the Hills.”

This means ore from the Darlot mine will be processed at King of the Hills from next year, with the precious metals asset forecast to produce between 62,000 and 72,000 gold ounces over FY22.

Mining engineer Redpath has also been contracted to undertake an initial 12-month development program to establish new mining areas at Darlot, creating new exploration targets for future drilling campaigns.

According to Williams, this poses further upside at the historic gold asset.

“Quite potentially, we’ll be able to extend our mine life past our current timetable of two years.”

Could gold rise in 2022?

Amid preparations for first production at KOTH, Red 5 could also enjoy a surge in the gold price as the world continues to recover from COVID-induced headwinds.

In July, investment titan Goldman Sachs (NYSE:GS) said it expected the precious metal’s pricing to hit “$2,000 per ounce in three, six and 12-month horizons”.

The bank explained the commodity was currently pricing in a “Goldilocks scenario” owing to moderate inflation and continued economic recovery.

In an investment note, Goldman stated: “In a scenario where the global economic recovery does not play out as expected or inflation begins to move materially above expectations, we see material upside to gold given its undervaluation and low allocation from the investment community.”

“In our view, this implies gold can outperform cryptocurrencies, which we view as more risk-on inflation hedges.

“Overall, we see crypto still far from becoming a defensive long-term store of value like gold.”

In turn, a future gold price hike could bode further upside for Australia’s next major gold mine.

But even still, Williams believes the commodity’s current value primes the asset for success.

“One of the advantages we have compared to 18 years ago is a significantly higher gold price — many times higher than in 2004 when it was about A$400.”

King of the Hills poised to reign

Red 5 may have already joined the ranks of Australian gold producers with its acquisition in 2017, but the rise of King of the Hills is poised to launch the company to new heights.

Speaking on Red 5’s story to date, Williams summarised: “We were able to see and realise an opportunity that no one else had.

“We had the confidence and courage to take that step and purchase two unloved assets four years ago, bolt them together and get them to work from a production point of view to generate positive cash flow.

“We’re fully focused on being able to deliver King of the Hills, but we won’t stop there.

“The entrepreneurial spirit is alive and well, and we’ll continue to look forward to other opportunities that are value-adding at the right point in time.”

Source: Proactive