Join our daily newsletter At The Bell to receive exclusive market insights
- Gold explorer Red 5 (RED) has officially delivered a final feasibility study (FFS) for its King of the Hills (KOTH) project in WA
- The feasibility study outlines an updated ore reserve of 64.6 million tonnes at an average grade of 1.15 grams per tonne of gold for 2.4 million ounces
- The King of the Hills project has a net present value of $1.1 billion before tax
- Given the $226 million of expected development costs, Red 5 expects the mine to pay itself off in just over two years.
- Managing Director Mark Williams said now that the FFS is complete, the company can move ahead with site works, permitting, tendering, and financing for the project
- Investors have responded well to today’s news, with Red 5 shares up almost four per cent this morning and currently worth 33 cents each
True to its word, gold explorer Red 5 (RED) has officially delivered a final feasibility study (FFS) for its King of the Hills (KOTH) project in Western Australia.
The company set the deadline for the FFS for the September quarter of 2020 almost a year ago and has met this deadline despite COVID-19 headwinds.
Today’s FFS outlines an updated ore reserve of 64.6 million tonnes at 1.15 grams per tonne of gold for 2.4 million ounces of contained gold.
Now that the feasibility study has been completed, first production from the mine is slated for the June quarter of 2022.
Red 5 plans to process roughly four million tonnes per annum (Mtpa) over KOTH’s 16-year mine life. This means for the full operation, the company plans to mine 63.7 million tonnes at an average grade of 1.25 grams per tonne of gold for a total production of 2.5 million ounces of contained gold.
The company said it expects all-in sustaining costs (AISC) of $1415 per ounce of gold over the total life of mine.
Looking at the financials, the project is expected to deliver free cash flows of $2.27 billion before tax, or $1.54 billion after tax. KOTH has a net present value of $1.1 billion before tax, with a pre-tax internal rate of return of 64.3 per cent.
Given the $226 million in expected development costs, this means KOTH is expected to pay itself off in just 25 months.
Importantly, these predictions assume a gold price of $2500 per ounce.
Red 5 Managing Director Mark Williams said today’s completion of the FFS is a pivotal moment for Red 5 shareholders.
“The FFS has confirmed the technical and financial viability of a major new 4Mtpa mining and processing operation at King of the Hills, with optionality to expand to 6Mtpa in the future,” he said.
Moreover, the spot price of gold has been averaging well over $2600 per ounce for the past two months — meaning if this trend continues, KOTH’s financials could be even better than predicted.
“With strong production in the early years of the mine, the project is well placed to benefit from the favourable gold price environment,” Mark said.
He said now that the FFS is complete, the company is set to move ahead with site works, permitting, tendering, and financing for the project.
“With our strong cash reserves, we are also now in a position to negotiate and secure a competitive project debt funding facility and, to this end, 12 prospective project lenders are already involved in the debt process,” he said.
Investors have responded well to the completed feasibility study, with Red 5 shares up 3.81 per cent this morning and currently worth 33 cents each. The company has a $644.38 million market cap.
