Red 5 unveils new A$34m growth strategy

PERTH (miningweekly.com) – Gold miner Red 5 on Thursday unveiled a new growth strategy, centred on the acquisition of a new high-quality asset portfolio in the Eastern Goldfields region of Western Australia.

The company said it would acquire the Darlot gold mine from South Africa’s Gold Fields for a total consideration of A$18-million and the acquisition of the King of the Hills project, from Australian miner Saracen Mineral Holdings for A$16-million.

The operating Darlot mine has produced some 2.7-million ounces of gold over a 28-year operating period, and produced some 66 000 oz of gold in 2016. The project includes a fully operational 0.83-million-tonne-a-year gold processing plant, which was refurbished between 2010 and 2013 for a total cost of A$17-million.

Under the first stage of the Eastern Goldfields consolidation strategy, Red 5 aims to maximise throughput at the Darlot mill over an initial three to four-year period, by processing ore from both the Darlot and King of the Hill mines.

Stage 2 of the strategy will center on increasing the reserve base in the Eastern Goldfields through regional exploration within the 25 700 ha tenement footprint acquired under Darlot and King of the Hill transactions, as well as assessing additional business development opportunities.

Red 5 MD Mark Williams said that the transactions marked the beginning of an exciting new chapter for Red 5.

“We have entered into binding agreements to acquire two significant West Australian gold assets which, together, establish the foundation for a long-term consolidation and growth strategy in one of Australia’s most prolific and active gold districts.”

Williams said that collectively, the acquisitions represented the cornerstone of a consolidation strategy that would put Red 5 in an ideal position to establish Darlot as a central processing facility capable of unlocking many undeveloped gold deposits within the region.

Saracen said that the sale of the King of the Hills mine, which Saracen acquired from St Barbara in 2015, was consistent with the company’s strategic focus on its core production and exploration assets at Carosue Dam and Thunderbox.

The sale consideration would include A$7-million in cash as well as 90-million Red 5 shares, escrowed for a period of 12 months, as well as a further A$4.5-million in either cash or shares some 12 months after the completion of the transaction. Red 5 will also assume all environmental liabilities for the project.

Saracen MD Raleigh Finlayson said the sale of the King of the Hills mine represented an opportunity for the company to crystalise value from an asset which had become noncore against the backdrop of substantial production and reserve growth over the last 12 months.

“We are experiencing outstanding growth at the Karari and Thunderbox mines, located immediately adjacent to the Carosue Dam and Thunderbox mills respectively.

“While King of the Hills is a high-quality asset, its potential as a source of ore is being displaced by the abundance of higher margin ore closer to milling infrastructure. Red 5 is aiming to bring it into production as part of a wider consolidation strategy and Saracen will retain ongoing exposure to this through its shareholding,” Finlayson said.

RIGHTS ISSUE
Meanwhile, in order to assist in the acquisition funding, Red 5 has told shareholders that it would raise some A$12.7-million through a partially underwritten nonrenounceable rights issue, under which eligible shareholders would be allowed to subscribe for one new share for every three existing shares held, at an issue price of 5c each.

The rights issue will be partially underwritten by Gold Fields to A$8.5-million, which will include a sub-underwriting commitment by Saracen of A$1.5-million, subject to shareholder approval, to place the shortfall.

An additional placement to Gold Fields and Saracen may also be required after the close of the rights issue, in the event that the shortfall is not sufficient to retain Gold Field’s relevant interest in Red 5 at 14.54% and Saracen at 10.54% after the close of the rights issue.