05-Feb-2024:

Here's what the MoM boys had to say about it all today in their podcast:

Red5 Dangles the Carrot for Genesis in $2.2Bn Merger with Silver Lake | Daily Mining Show - YouTube

Chapters:

0:00:00 Preview

0:00:00 Introduction

0:01:08 Silver Lake's alternative marketing strategies

0:07:02 Red 5 MERGING with Silver Lake Resources

0:43:00 Potential Lynas and MP Materials merger

0:44:29 Centaurus get Environmental approvals

0:45:09 Silvercorp/Orecorp update

0:45:36 New Copper producer on the ASX

The short version:

The best thing about SLR is their large cash balance. The worst thing about RED is their debt and lack of cash, and to a lesser extent their out-of-the-money hedgebook. Putting the two companies together certainly makes sense for RED, as they need SLR's cash, and SLR will have better prospects to spend their cash on than they appear to have currently - in terms of exploration spending in highly prospective areas. And it will frustrate the hell out of Raleigh Finlayson at Genesis (GMD) who wants Leonora all to himself (or within his company, Genesis Minerals). Luke Tonkin might not have stopped the Gwalia sale from going through (from SBM to GMD), but he might just end up with RED, unless this deal gets trumped by Raleigh/GMD with a better deal.

For my longer post about this in the "Gold as an investment" thread - click here.

Luke Tonkin, above, the MD/CEO of SLR, will keep his job and be the MD/CEO of this larger new merged entity if the scheme is implemented and RED acquire SLR. RED's current MD, Mark Williams (pictured below), and RED's CFO, David Coyne, will both lose their jobs.

Below, RED's KOTH mill and underground mine:

Red 5 KOTH goes back underground - Australian Mining [7-Apr-2022]

Disc: I do not hold RED or SLR shares. I hold GMD shares, who may also be interested in RED, as I discussed here earlier tonight.

Some good news but a long road ahead. Still about 10 quarters of debt to pay if they keep going at this rate. So RED5 won't be debt free until maybe end of FY24. No update on that huge hedge book or whether they delivered some ounces into the hedges

Red5 up 11% to 0.295 and outperforming the rest of the gold sector. Approaching all time highs.

Wish I had this in my RL portfolio instead of my comp one.

Much of the recent share price action coming from strategic investment from SLR

Or maybe it could mean something more? Potential takeover perhaps after failing to acquire SBM's leonora operations?

Silver Lake Resources Limited (“Silver Lake” or the “Company”) wishes to advise that it has acquired approximately 383 million shares in ASX listed gold producer, Red 5 Limited (“Red 5”). The purchase represents approximately 11% of Red 5’s issued capital.

The acquisition of the holding in Red 5 is considered a strategic investment. Red 5 owns the King of the Hills operation and has an established broader footprint in the Leonora district in Western Australia. Silver Lake’s significant organically generated cash balance and forecast free cash flow provides it with the ability to move quickly on opportunities as and when they arise. Silver Lake will continue to make investment decisions and deploy capital into organic and external opportunities, consistent with its stated strategy to become a larger, lower cost and longer life business.

Although I don't look at gold miners that much, I can't ignore that Red5 looks like the only gold stock that has not followed the fall in the price of gold

However Red5 is working from a low base

Probably one reason is that they had positive operating cashflow for the quarter

The reserve size of KOTH is also double the size of Karlawinda

One negative is the cost of AISC ( around AUD 1837) due to the mix of Underground and Open Pit mining.

Another negative is the hedge book and debt.

Rough calc of the KOTH NAV is around $1.6bn AUD going by the AISC and average GP of $2860. This however does not include hedging or debt.

At the current market cap of $650m this seems materially undervalued but lots of things need to happen for a rerate a few being consistent production and cashflows and paying down debt quickly.

16-Dec-2022: Commercial-production-declared-at-King-of-the-Hills.PDF

RED have provided an operational update and some production guidance for H2 of FY2023.

Their SP is currently unchanged at 18 cps. That's actually a decent outcome on a poor day for the market and the gold sector, with the entire sector either down or flat, except for the two non-currency-hedged physical gold ETFs (GOLD & PMGOLD) being slightly up. Many of the producers are down between 2 and 5%, and yesterday was also a day of mostly red. Not a good week for the sector.

As I said when Pantoro (PNR) announced their first gold pour at Norseman recently, these minor milestones are good, but they don't tend to cause massive positive reratings. What will be far more important for RED is the reliability and production numbers at KOTH over the first year of production. The market will be looking for them to hit or beat their ownn guidance obviously, and for no major problems to develop at King of the Hills (KOTH).

Disclosure: I do not hold RED shares, although a good number of my holdings are in the Red today.