RED 5 (ASX:RED) share price in focus as gold production nears

Red 5 Limited (ASX: RED) is a step closer to production at its King of the Hills (KOTH) deposit in WA.  The company awarded the engineering, procurement and construction contract (EPC),  for the Process Plant to Maca Ltd (ASX: MLD). This contract covers the processing facility, equipping of the bore fields,  high voltage power distribution, workshop, warehouse and bulk earthworks. It has been awarded as a fixed price contract, and also includes bulk earthworks. The Red 5 share price dipped slightly at market open this morning, dropping 3.64% in the first few moments of trade.

Why is the Red 5 share price in focus?

Located in the eastern goldfields region, King of the Hills, has been in production since 2018 from the rich gold veins mined via underground mining. However, the company has identified a bulk mining opportunity to mine lower grade deposits between the rich seams. Consequently, the resource estimate raised to 90.7 Mt at 1.4 g/t Au for 4.07 Moz of contained gold.

MACA has a strong track record of the construction of similar carbon‐in‐leach (CIL) processing plants. In addition, spending will total $143 million at completion of this contract, which is 82% of the total capital budget of $188 million.

Other commitments besides this contract include;

• Purchase of 240‐bed camp accommodation, water and waste water treatment plants and central facilities;
• Design and construction contract for a 450‐person village;
• 6Mtpa gyratory crusher and 4Mtpa SAG mill; and
• Early Works Agreement with APA Group (ASX: APA) for the gas pipeline lateral.

The EPC contract provides for two phases. The first is limited to $50 million and Phase 2 is for the remainder of the contract value, which will be released at the discretion of Red 5, based on the status of debt financing.

The Red 5 share price has been flagging over the past month, falling 11.2% after rising early in the year. 

Management commentary

Red 5 managing director Mark Williams counts the awarding of the EPC contract as an important milestone for the company. Moving it a step closer to being a mid-tier, multi operational gold miner:

Our decision to award these key contracts and make commitments to significant long‐lead items prior to completing project debt funding reflects our confidence in the robustness of the King of the Hills Project.

Importantly, the commitments made to date are below budget for this stage of the KOTH Project, and should give our stakeholders confidence that we are well on track to progress the  development of this major project, with production planned to start in June Quarter 2022.

Company performance

The Red 5 share price has seen a volatile year and is presently 16.6% down in year to date trading. It is currently selling at a price to earnings (P/E) ratio of 85.67. King of the Hills is a major gold deposit and within the nation’s top 20 gold deposits.

By comparison, market darling Bellevue Gold Ltd (ASX: BGL) contains 2.2 Moz, albeit at a far higher grade.

More reading

• Why the Bellevue (ASX:BGL) share price is dropping lower

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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