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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome, everybody, to the Red 5 March 2022 Quarterly Investor Presentation Call. [Operator Instructions] But I'll now hand over to Patrick Duffy, Chief Corporate Development Officer of Red 5. Please go ahead, Patrick.
Okay. Thanks, Luke and good morning, everyone. And on behalf of Red 5, thank you all for joining this call. We're here to provide an update on the activities at King of the Hills and Darlot during the March 2022 quarter.
Please note, this morning, we've released to the market the quarterly report and the investor presentation, which we'll walk through on this call. Unfortunately, we've had some technical issues with the system, and we won't be able to put the presentation on the screen. So I do ask if you can open that via the ASX or our website then you will be able to follow the conversation and follow the presentation.
We've also released a commissioning [ flyover ] video from the 26th of March, which can be seen on our website and social media channels.
I'm joined today by my colleagues who will be presenting during the call, our Managing Director and Chief Executive Officer, Mr. Mark Williams; our Chief Operating Officer, Mr. Jason Greive; and our project manager responsible for the construction of the King of the Hills project, Mr. Warren King. Please note, there will be an opportunity for Q&A at the end of the call.
Our first speaker today will be the Managing Director, and over to you, Mark.
Red 5 is fortunate to own 2 gold mines in the Eastern Goldfields of Western Australia, Darlot and King of the Hills. The company purchased these 2 assets in 2017 and for $34.5 million. Since then, we haven't looked back, and we've been on a value growth trajectory ever since.
Our flagship asset is King of the Hills, which we are currently forecast to spend $226 million to develop into a Tier 1 mine. King of the Hills has a 2.4 million ounce ore reserve. And when it begins production in the very near future will become one of Australia's largest endowed gold mines.
We've worked very hard to build an experienced management team. And during the quarter, we confirmed the appointments of Neal Valk, Craig Hatch, Andrew McRae, Oli Keene, plus Malcolm Cowcill, who is leading mines on site. I'm pleased to state the team is working -- tingly work together and we have chosen a deliberate partnership, partnership approach with [indiscernible] on site.
Today, the company has an enterprise value close to $1 billion, significantly more than 3 years ago when Red 5's EV was less than $100 million. We are an ambitious company, and now have an outstanding team. We see King of the Hills as our launch pad to becoming a combinant mid-tier Australian gold producer in the coming years.
The company as close to $48 million of cash and volume at the end of March. Although I'll note that $28 million is tied up in the cash reserve for the King of the Hills project. We have a $175 million debt facility with Macquarie Bank, BNP Paribas and HSBC. The first drawdown at this facility occurred in July 2021, and we have drawn $123 million at the end of March 2022.
We are very well supported with a very strong register, including Franklin, Ruffer and Electrum. And over the past 12 months, Victor Smorgon Group has emerged as our largest shareholder.
We continue to work hard to ensure a safety culture on our sites, a safe working culture on our sites. Red 5 has managed to maintain a safety performance that is broadly in line with the industry. We were very disappointed to have incurred a lost time injury for the quarter, however.
Safety performance and performance in general is an ongoing process of improvement, and we are focused on implementing stronger procedures and practices at King of the Hills with our mining business partner, Macmahon and our other contractors on site.
COVID continues to be a risk to the business and every person entering the Red 5 mine site has to be vaccinated and must undertake a rapid antigen test before entering site. To date, I'm pleased to say our COVID management plan has been effective in minimizing the transmission and the number of workers having to isolate well on site.
A milestone -- a major milestone in establishing our long-term environmental objective at King of the Hills was achieved during the quarter with the construction of the solar energy and battery farm. This is a build-own-operate contract with our power contractor Zenith Energy and the solar farm is part of our hybrid gas solar power solution on site.
Good morning, everyone. We're now on the Darlot. Our gold production in the March quarter was 13,185 ounces. Mining activities at Darlot and Great Western continue to be impacted by the unprecedented labor market and skill shortage, which have been amplified in recent months by COVID-19 close contact implications, illnesses and absences from the workplace.
Notwithstanding this, the rapid development program currently underway in the Darlot underground mine with Red 5 Australia remains on track with over 1,400 development leaders completed since the project inception in October with Red 5 averaging well over 260 meters advanced a month.
Red 5 anticipates overall gold production for the FY '22 year in the range of 62,000 to 72,000 ounces at an all-in cost of $2,400 to $2,500. It is anticipated that Darlot processing operations will start to ramp down over the coming weeks as the company transitions its processing operations over to the King of the Hills processing hub.
In regards to King at the Hills, the camp facility at King of the Hills is now completed under operational management and running at full capacity. It is now being utilized by the operations and construction teams. The short transit time from Perth to site due to its proximity to Perth via the Leonora airport is a major selling point in the attraction and retention of staff.
We have been running a substantial recruitment campaign as part of our operational readiness program, and I'm pleased to report that the Red 5 owners team for the King of the Hill project is now 95% completed with only 8 remaining roles outstanding. This has been a great outcome given the current unprecedented labor market conditions and is reflective of the quality of the project and of the leadership team in place at Red 5.
Pleasingly, as Mark previously alluded to, Red 5 has been able to assemble an extremely high-caliber and very experienced management team for the King of the Hills project.
We're now on Slide 8. KOTH Mining slide. Open pit mining operations at King of the Hills have commenced and ramped up in line with the project execution schedule with our business partner, Macmahon. We're now operating 2 fleets on a double shift basis in the open pit.
Initial mining activities have included the construction of the ROM pit and commissioning of the primary crusher. During the quarter, grade control drilling in the open pit was completed, and ore production from the open pit mining activities is on plan.
There are now substantial stockpiles of ore on the ROM in anticipation of SAG mill and plant commissioning. The processing operations team led by a processing manager, [indiscernible], with is now fully prepared to commence SAG mill commissioning activities and ramp-up of the KOTH processing operations over the coming weeks.
All mining equipment for the open pit and underground has been mobilized to site and has been commissioned according to plan and Macmahon recruitment for the third open pit fleet and underground is ongoing. Construction of mining workshops and other infrastructure is also well advanced and on track.
In the underground mine during the quarter, the initial underground fleet and mining crew was mobilized to site and commissioned and the first underground development cut was taken at the end of March. Underground production activities will now continue to ramp up in the June quarter, including the commencement of stope ore production.
I will now hand over to our King of the Hills Construction Manager, Warren King for an update on site construction activities.
Warren? It's, Patrick here, you might be on mute?
Thanks, Patrick. Sorry. Good morning, everyone. I'm on Slide 9 with the gyratory crusher. Construction and commissioning of the 6 million tonne per annum crushing circuit has been completed. Red 5 personnel have been operating the crushing circuits. On the softer oxide material, throughputs have been between 1,500 and 2,000 tonnes per hour. And on fresh compact's been approximately 1,350 tonnes per hour. We have crossed waste material to complete the base of the coarse ore stockpile and have now started building the stockpile for first week [indiscernible].
On the construction and commissioning of the gas pipeline that's been completed. The lateral has connected to the Goldfields gas pipeline and gas is now being supplied to the KOTH site. Construction and commissioning of the power station has been completed to the stage that it's ready to power the process plant. The interfaces between the power station and the SAG mill drives have been tested. The solar panels pictured in the slide have been installed. However, there are some wiring connections and installation of the transformer required before they will be operational.
I'm on to the SAG mill commissioning slide. The commissioning of the process plant is ongoing. The SAG mill variable speed drive is operational, and we've been turning them all on a single motor and synchronization of the 2 motors and testing of fuel motor operation is expected to be completed in the next couple of days.
Our SAG mill doesn't have an [indiscernible] drive. So the main driver and [ node] is needed -- what was used to turn the mill to be able to [ line it ]. And this was completed earlier this week where we installed 560 tonnes of liners.
All the water and air services have been commissioned. Final drive and alignment are planned to be completed on the SAG mill this week and first dirt into the mill is imminent. Our EPC contractor are experiencing cost overruns, and that's primarily due to the highly constrained labor market as it is a fixed price contract, the cost overruns are not transferred to Red 5.
That said, [indiscernible] are doing an excellent job on sites are absolutely committed to completing a successful project, and we are happy with their performance to date under these challenging circumstances.
I'm on to the scheduled slide, which is Slide numbers on the schedule slide, entitled KOTH first gold on-track for the June quarter. Our primary focus now is first gold, which will be in the current quarter. Just to recap construction and installation is all but complete. Commissioning of the crushing circuit is complete. Commissioning of the power station is largely complete and ready to supply power to the SAG mill. We're well advanced with commissioning of the SAG mill and first ore to mill is eminent. Mean all operations team is in place. Macmahon is mining both in the open pit and underground and ore is on the ROM pad, ready to be processed.
And with that, I will hand back to Mark.
Thank you, Warren. So on Slide 13, Construction is on schedule and within budget. As I touched on earlier, the budget for the construction of King of the Hills project is $226 million. Based on what we know today, we are confident that we will finish the project within budget.
We have a fixed price EPC contract with MACA Interquip together with a number of other agreements, which has protected the project from cost inflation. I echo Warren's comments and it is a full credit to MACA Interquip that they have been able to source the labor and continue to hit our project milestones.
Okay. Finally, this slide the value opportunity on Slide 14 just represents the value opportunity for investing in Red 5 as we approach first gold and subsequent steady state [indiscernible]. Chart compares to enterprise value to ore reserves for the Australian mid-tier gold producers.
Today, Red 5 is valued at approximately $300 per ounce. And when I meet with investors, I do like to pointed to a comparative themes. The first is Gold Road, which is 2 to 3 years ahead of Red 5, having achieved steady-state production, has a similar grade, a single life of mine and at this point in time is approximately $600 to $700 per ounce.
The second comparison is Capricorn's Karlawinda project, which is 12 months ahead of King of the Hills. The Karlawinda project has a lower grade, a shorter mine life, much smaller production profile, but today sits at above $1,200 per ounce. So we do foresee that actually these 2 imminent milestones at first gold and then steady state production share price will become more in line with those peers.
The other second point I often like to make is just the growth potential, future growth potential of King of the Hills, once it assumes steady-state production. The oversized mill that's been installed in place, with capacity to do higher throughput than the nameplate, all the confirmed 4.7 million tonnes per annum. And also just the enormous 4 million-ounce resource and 2.4 million ounce reserve can be extended with further drilling in the future.
That's the main presentation. I'll hand it now back to Luke for Q&A.
[Operator Instructions] Our first question comes through from [ John Thomas ], Private Investor.
Just looking at the all-in cost for production and it seems to be quite high at the moment. What are the predictions for that going forward as you swing into full production?
Yes. Thanks, John. This is Patrick Duffy. So the all-in sustaining cost at Darlot, has currently been sitting around the $2,500 per ounce mark. And in the last quarter, we expect that to reduce to an average of $2,400 to $2,500 per ounce for the full year.
As we've flagged, Darlot will be shut down by the end of this -- by the end of the June quarter. And King of the Hills will become much larger and much more efficient and much lower cost production center that will be running for the next 16-plus years.
So there is a major inflection point for the feasibility study, the all-in sustaining cost was on average over the life of mine $1,430 per ounce, which at today's [ oil ] prices will make significant margins at that price point [indiscernible].
[Operator Instructions] Our next question comes through from Mathew Collings Collings from Morgan.
Just, I guess, the unpleasant question following on from that one about your view on costs. There's a lot of people reporting today. Costs are continuing to hammer through. Certainly, diesel is elevated in the short term. But is there some outlook on how you're feeling cost-wise as you move towards commissioning? Or are we too soon to say?
Yes. Thanks, Mathew, it's Patrick again. Yes, it is too early to say. We are obviously monitoring the cost. We've done a number of drive a number of efficiencies in the mine plan in the last 6 months and probably that reflects the bigger trump sizes and a combination of both open pit underground contracts have Macmahon where on a sort of like-for-like basis, we've been able to reduce the cost base, but obviously, there is a lot of pressure on all areas of cost. I expect that once we do achieve steady-state production, we'll be in a position to provide guidance for next year. So if you can wait till that end it'll be appreciated.
Mat, it's Mark. Just to add to what Patrick is saying on the looking at cost efficiencies, the other cost efficiency that we've been able to drive through over the past 12 months is to increase the throughput of the processing plant over 4.7 million tonnes. So we see that together with the truck sizes and other efficiencies that Patrick talked about, is helping to offset the rising cost from diesel and [indiscernible].
Our next question comes from [ Gary Bennett Branch ].
What is the intention with extending the production beyond 4.7%? I've been led to believe that the design of the mill allows relatively easy production increase about 5 million tonnes, but can that happen in the first instance and in a second instance, how do you go to much higher levels?
Yes. Thanks, Gary. I'll let Jason answer that. Jason unfortunately has a post-COVID cough so.
Apologies for [indiscernible]. We have been in the process of looking at various options for the processing plant and what it would take to expand the operation. The front-end design, caters, through to the mills caters for nameplate, I guess, up to 6. However, there would still be significant sort of downstream modifications required to the plant to get it up to those sorts of throughput rates.
Those studies are in the process of being done and mining studies to look at part of the driver for [indiscernible] in the mining contract and in the mining fleet. And we do believe that we can mine out those as to us before looking at a plant expansion.
It's still in the early stages, and I anticipate that there will be some additional news flow about improvements that can be made to the mine plan and to the processing plant in course. But certainly, during the initial design phase with the plant, a number of contingent -- a number of contingency items were costed into the design. So there is contingency, for example, a mill -- [indiscernible] with the mill at this stage, [indiscernible].
Any other questions?
[Operator Instructions] Gary, your line reopened.
Are there any M&A possibilities that are in the area or beyond the area?
Yes, I think -- Gary, it's Mark here. I think what -- there's a number. I think it's a really good question. Thank you for asking that.
What's important to us in the immediate term this quarter is to get first ore through the mill and to produce the first gold. The -- for the remaining 2 quarters for the September and December quarters, it's really focused on having a smooth ramp-up of both the mill and the mining schedule. So that will be the focus for this calendar year. For next calendar year, then we see that we'll be looking to produce free cash flow.
And with that free cash flow, we see that the best opportunities for additional growth with the project. And as we said, we're an ambitious company. You know exactly where we've come from with the Philippines and these 2 assets and now we're almost $1 billion or have been $1 billion market cap.
So we want to expand our exploration opportunities, and we have a significant organic growth pipeline, both at King of the Hills and at the Darlot tenements, which we've progressively been building up over the past couple of years.
Within the region and more in the midterm, so within a 2-plus year horizon. There are a number of projects which are good projects but don't justify their own processing plant. So within -- at the right time, and if the projects add value to Red 5 of them and our shareholders, then we'll certainly look at those. But in the short term, it's really ramping up production, making sure that we hit steady state at both the processing plant and the underground and open pit mining. And then we see that the low-hanging fruit for us is the organic growth pipeline that we have both underground and on surface at King of Hills and the Darlot tenement.
[Operator Instructions] Gary, your lines back open again.
Final question. Can the loan be paid off early? And how long is the hedging locked in?
Yes, Gary, it's Patrick Duffy again. So the loan facility has been paid early through cash flow from King of the Hills. And secondly, the hedge profile, the first hedges get delivered in the December quarter. At the moment, we're just delivering it spot. In total, there's roughly 190,000 ounces of hedging on average at $2,950 per ounce, and that's over a period of 3 years. So approximately 25% of the production profile during that loan period.
So yes, we benefit from that debt facility. It's enabled us to build King of the Hills at a rapid rate and deliver on time. And then we've got an exciting year or 2 ahead of us as we ramp up to full production.
I think, Gary, you looked at the feasibility study numbers, back in September 2020, we put in and we put in a series of gold prices and paying off the debt repayment. And you can see that from memory, I think at $2,500 or $600, it would be on the feasibility study, someone a 2-year payback.
Our next question comes through from [ Jonathan Morgan ].
Thank you for your time this morning. This is more a financial -- financial effects. Does Red 5 have any intention of any of the share issues in the next 12 months?
Yes, I can answer that. No. The intention is no new share issues are planned or intended or thought about at the current point in time.
We don't have any other questions in the queue. I'll hand back over to Patrick and the team for any closing remarks.
Thanks, Luke. Just thank you, everybody, for dialing in today. Obviously, first gold imminent and first gold in the coming weeks, pretty exciting period and lots of news flow to come as we ramp up King of the Hills over the next 6 months. Apologies again for the technical issues, and hopefully, you've been able to follow the discussion and the presentation.
If there's any further questions, you can reach out directly to the company, which contact details are in the announcement today. Thanks, Luke.
Thank you, team. Thank you all for joining. That concludes Red 5 March 2022 Quarterly Investor presentation call. All participants may disconnect.