In June 2019, ERA visited Red 5’s mining operations at KOTH (King of the Hills) and Darlot over four days, spending ~ 2 days on each underground mining operation and regional exploration, including visiting the ~1Mtpa plant at Darlot. [This was ERA’s first visit to the Darlot and KOTH operations under Red 5, having historically visited Darlot in 1997 (under Plutonic) and in 1998 & 2000 (under Homestake Australia); and KOTH in 1995 and 1996 (under Mt Edon)]. This report is based on the site visits, historical info, and Red5 releases and presentations.

Other Key Points: :

• Red5 has two wholly owned gold operations in WA, being KOTH (or King of the Hills) and Darlot. Both operations were acquired using cash and shares in October 2017 (after announcing in August 2017), being KOTH from Saracen for $16M, and Darlot from Gold Fields for $18.5M. Both SAR and GFI believed they were selling assets with limited lives, but RED is transforming them.
• Red5 has shown that KOTH’s “stockwork” mineralisation along its Eastern Contact can be bulk mined at lower costs, by its successful mining of a Lemonwood stope of ~32kt @ 3.4g/t, and the W4975 stope above it (in a single-blast of ~20kt @ 4.5g/t), in contrast to historically KOTH’s stockwork having been mined underground according to its main higher grade mineralised shoots. In JQ19, the bulk stopes were overcalling, eg W4975 B3 19.6kt @ 4.56g/t realised 5.2g/t.
• This has led to RED targeting completion of a Strategic Review possibly in SQ 2019 on bulk mining for a possible 2Mtpa to 4Mtpa new plant at KOTH, while it initially mines at 30-35ktpm from bulk stopes and 15-20ktpm from higher grade narrow veins and development.
• Conceptually (ERA view) a 4Mtpa plant at grades of 1.3g/t to 2.0g/t and 94% recovery could produce ~160kozpa to 240kozpa, given that intersections along the contact have been up to ~310m @ 1.2g/t & 2.0g/t, trial bulk stopes were 3.4g/t & 4.5g/t, & the resource is 66Mt @ 1.5g/t for 3.1Moz. Capex could be relatively low as the altered granodiorite work index is only ~15 (vs usually >21). Could KOTH potentially become a Tier 1, >300kozpa mine? – maybe. However, combined with Darlot, Red 5 could increase from its >100kozpa, to a >300kozpa gold producer.
• At Darlot, the 0.83 Mtpa plant has already achieved a treatment rate of over 1Mtpa, and could be capable (ERA view) of ~1.2Mtpa at relatively minimal expense. However, ore sorting trials are to be conducting at KOTH which may reduce the targeted ~600ktpa to lower tonnage at higher grade – while then also reducing the transport costs to Darlot.
• RED’s AISC for JQ2019 reduced to A$1331/oz on 30.1koz partly due to its high grade Oval West orebody discovery and extension at Darlot (ore reserve of 325kt @ 5.9g/t for 61.5koz) and its ability to be bulk stoped. FY20 guidance is 110koz-120koz at an AISC of A$1350 – A$1500/oz.
• Darlot and KOTH have material exploration upside both being goldfields dating back to the 1890s.