Red 5 “back in the land of the living”, says Grigor

13th April 2018
Resources Rising Stars

Rejuvenated gold producer Red 5 Limited (ASX: RED) is trading at around half the valuation of many of its Australian gold peers, according to respected Sydney-based analyst Warwick Grigor of Far East Capital.

Writing in his weekly newsletter, Grigor says Red 5 is best known for its Siana gold mine in the Philippines and for the problems it experienced with the competency of its tailings dame and delays in achieving regulatory approvals – which resulted in mining activities being suspended in 2017.

However, Red 5 is now “back in the land of the living”, says Grigor, following its successful purchase of the Darlot gold mine and the King of the Hills gold project in WA, 90km apart. Darlot was acquired from Goldfields and King of the Hills from Saracen Minerals.

“As a generalisation, Australian companies have done very well out of buying back gold mines from foreign owners in recent years, with the local companies having the benefit of more focused and flexible management than previous owners,” says Grigor.

“Darlot looks like it will be a similar scenario with the maiden JORC resource increasing to 6Mt at 4.6g/t for 895,000oz. This is a quadrupling of the gold.

“The market capitalisation of RED is only $86m. The cash balance is $21m, giving an enterprise value of $65m. That equates to $47/oz of resources, which is half the valuation given to many of the company’s peers.”

Grigor says Darlot and King of the Hills give Red 5 a platform from which to grow “while Siana is sorting itself out”.

“While the technical operations justify more commentary than space allows in this column, it is easily apparent that the RED share price is not expensive,” he continues.

“How quickly and how significantly the share price rises from here will depend on how effectively management present the new-look company to investors, and how smoothly the ramp-up of gold production proceeds. We have resumed chart coverage of Red 5.”

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