- Red 5 (RED) is expecting a poor 2020 financial year result from Darlot and will change its strategy following the recent purchase of the Great Western Project
- A series of unexpected events at Darlot have made an impact on the current year’s performance
- This has caused a lower-than-expected gold production over the March and June quarters
- The company has completed maintenance and reviews to improve the mine
- Production for the 2020 financial year is expected to be around 93,000 ounces, which is down from a guidance of between 98,000 and 102,000 ounces
- Around 3200 ounces were lost due to a 10-day mechanical shutdown
- Red 5 has announced its transitional production strategy for its Darlot Mining Hub based on its recent purchase of the Great Western Project
- The company will now commence open-pit mining in the December quarter of 2020 but will scale down its underground ore production at King of the Hills
- Red 5 is down 32.8 per cent on the market this morning and is selling shares for 22.5 cents each
Red 5 (RED) will be expecting a poor 2020 financial year result from Darlot and will change its strategy due to its recent purchase of the Great Western Project.
Darlot
A series of unexpected events at Darlot have made an impact on the current year’s performance. This has caused a lower-than-expected gold production for the March and June quarters.
Due to this, several maintenance initiatives have been completed this year to improve the reliability of the mill. Some of the maintenance includes a review and trial of primary mill liner design, crushing plant structure, replacement of conveyor and many more.
Further to the maintenance, Red 5 has also undertaken a mine and geology review of the mining operations and made some changes.
Since mid-May, following these changes, the Darlot Gold Mine has been producing rates which were consistent with the initial guidance for the June quarter, with an average head grade of around 3.5g/t.
Despite these good changes, the June quarter is expecting to be approximately 21,000 ounces, compared to a guidance of between 26,000 and 30,000 ounces.
Production for the 2020 financial year is expected to be around 93,000 ounces, which is down from a guidance of between 98,000 and 102,000 ounces.
Around 3200 ounces were lost due to a 10-day mechanical shutdown, which required specialist parts for the crusher to be sourced and transported from overseas. The mill was then operating at 50 per cent compacity, until June when it was at the full processing compacity.
Additionally, also at Darlot, there has been lower than forecast average grades due to mine dilution.
Managing Director Mark Williams is disappointed with Darlot’s production.
“[However] we are confident that the measures implemented will stabilise production and improve predictability to put us on track to achieve our FY21 forecast,” he said.
New strategy
Red 5 has announced its transitional production strategy for its Darlot Mining Hub based on its recent purchase of the Great Western Project.
The company will now commence open-pit mining in the December quarter of 2020 but will scale down its underground ore production at King of the Hills (KOTH).
Mark said the company has mapped out its plan for the next 18 to 24 months.
“The decision to commence open pit mining at Great Western and scale down underground mining at KOTH during the second half of 2020 is consistent with our previously articulated growth vision of establishing a major new production hub at KOTH and developing an expanded long-life mining and processing hub at Darlot,” he added.
“Red 5’s exploration strategy at Darlot is aiming to establish the Darlot Gold Mine as a stand-alone mining and processing hub, with a targeted 5 to 10 year mine life, assuming no ongoing contribution of ore from KOTH,” the company explained.
2021 financial year
In the 2021 Financial Year, the Darlot Mining Hub is expected to produce 90,000 ounces to 98,000 ounces at an average all-in-sustaining-cost of between $1,830 to $2,030 per ounce.
The gold will be sourced from the Darlot Underground Mine, KOTH Underground Mine (until Decemeber 2020) and the new mine at Great Western.
Capital raise
Following shareholder approval, the company is aiming to complete the second tranche of a $125 million capital raising.
Around $20 million will be used for ongoing exploration at Darlot and KOTH. A further $6.1 million will be used to pay back the loan facility with Macquarie Bank.
Red 5 is down 32.8 per cent on the market this morning and is selling shares for 22.5 cents each at 11:07 am AEST.