24/06/2020 - 12:34

Red 5 dives on production cut

24/06/2020 - 12:34


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Shares in Red 5 tumbled by 34 per cent today after the goldminer cut its production guidance for the current year and revised its future development plans.

Red 5 dives on production cut
The mill at Red 5's Darlot gold mine was shutdown for ten days.

Shares in Red 5 tumbled by 34 per cent today after the goldminer cut its production guidance for the current year and revised its future development plans.

The company said an unplanned 10-day mechanical shutdown of the Darlot mill had resulted in lost production of about 3,200 ounces.

Red 5 had initially expected the shutdown would last 72 hours but it was extended after spare parts had to be sourced from overseas.

The company said production had also been adversely affected by lower than forecast mining grades.

The result is that production for the June quarter will be about 21,000oz, compared with guidance of between 26,000oz and 30,000oz.

For the year to June 2020, production is expected to be 93,000oz, well below guidance of 98,000oz to 102,000oz.

Today’s update comes three months after the company raised $125 million at 18 cents per share.

Since then, the shares had recovered to as much as 33.5 cents before tumbling sharply to 22 cents today.

Red 5 also disclosed today it has reviewed the ‘truck to Darlot’ business model.

It will commence open pit mining at its Great Western deposit from the December 2020 quarter and progressively scale back and suspend underground ore production at King of the Hills in the second half of CY2020.

The suspension will coincide with the planned start of site construction for the bulk mining operation at King of the Hills and will preserve shallow underground ore reserves for the proposed new 4mtpa standalone mill.

Managing director Mark Williams said the transitional production strategy for the Darlot mining hub provided a clear direction for the company over the next 18-24 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,” Mr Williams said in a statement.

“While we are disappointed that Darlot production has again been impacted in the short term due to the issues outlined in this release, we are confident that the measures implemented will stabilise production and improve predictability to put us on track to achieve our FY21 forecast.

“This transitional production strategy is a critical step towards establishing two independent long-life production hubs in the eastern Goldfields as the foundation for a significant mid-tier Australian gold producer.”

Gold production for FY21 is expected to be in the range of 90,000oz to 98,000oz.

This will be sourced from the Darlot underground mine, the KOTH underground mine (until the December 2020 quarter) and the commencement of open pit mining at Great Western.

The company said a detailed review of its Darlot operations had resulted in a noticeable improvement in mine dilution and recoveries since changes were implemented in May.


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