Once a Philippines-focused gold miner, Red 5 is eager to ascend the Australian gold mining mountain, and its new King of the Hills operation could be the ticket it needs to get there.
Red 5 produced first gold from its new standalone King of the Hills mining and processing operation in the June quarter of 2022, a journey that’s been years in the making.
First opened in May 1990, King of the Hills has long been a trusted asset, with the likes of Mount Edon Gold Mines, Sons of Gwalia and St Barbara among its previous owners.
Red 5, previously a Philippines-focused gold miner, acquired the Western Australian operation from Saracen Mineral Holdings in 2017. The company purchased the Darlot gold project from Gold Fields in the same breath, and suddenly its Eastern Goldfields aspirations were gathering steam.
“In 2017, we came across a great opportunity to be able to combine Darlot and King of the Hills as a standalone production centre,” Red 5 managing director Mark Williams told Australian Resources & Investment.
“Fortunately, they were being sold at similar times but by separate vendors, so entrepreneurially we saw the opportunity to be able to combine them. They both had aspects that were complementary of each other, and once we’d done that essentially the strategy was to fill the mill at Darlot.
“That was October 2017, and we haven’t looked back since. We’ve been able to add tonnes and grade and it was a year into restarting the King of the Hills mine that we identified these great intercepts.”
Red 5 commenced a 30,000m drill program at King of the Hills in October 2018, and as hole after hole hit continuous, high-grade mineralisation, the company’s belief in the resource grew.
“We ended up with 200–300m at somewhere between 1.5–2g intercepts … and so we said, ‘Hang on, we might have something here’, and turned the drill around and did the same in the other direction.
“We ended up with 500–600m, something like 2–3 football fields of grade that was, on average, somewhere between 1.5–2g.”
As Red 5 crunched the numbers, it realised King of the Hills had the potential to be bulk mined, a method lending to a higher ore production profile.
“Back in the day, King of the Hills had been mined as a bulk open pit off and on during the ’90s for something like 15 years and had mined 1.6 million ounces as a bulk opportunity,” Williams said.
“So we said, ‘Can we turn the clock back to 2004 and pick up exactly where Sons of Gwalia had left off?’, and that kickstarted a new journey for the project.
“We finished the pre-feasibility study; the final feasibility study was completed in September 2020. And, remarkably, at the conclusion of the feasibility study we found King of the Hills to be the eighth largest endowed gold mine in Australia with 2.4 million ounces of reserves.”
Confident in King of the Hills’ potential, Red 5 launched a $125 million equity raise at the advent of the COVID pandemic. With King of the Hills still not fully proven in the public eye, this move was a gamble, but one that would eventually pay off.
“We’re in a really fortunate position because of a decision the board and management took in 2020,” Williams said. “We raised the equity portion – $125 million – in March 2020, which was quite an unconventional approach because at that stage we were halfway through the feasibility study.
“Convention is that you finish a feasibility study and then go through the debt portion, raise the equity, and then have the final investment decision. But we raised the equity halfway through the feasibility study, and we did that for a number of reasons.”
Red 5’s conviction was underpinned by its clarity of the project.
“We’d just announced a 4.1 million-ounce resource – we knew there was lots of gold at King of the Hills. It’s a brownfield site; there’s 1.6 million ounces that’s been depleted from the open pit, 400,000 ounces in the underground, so there’s been two million ounces depleted.
“All of the key parameters were known … and it was a supercharged gold price at the time. We were also on the eve of the COVID lockdown and the future was quite uncertain.
“So we took a bold decision to raise the equity and it really has paid off because that allowed us to engage our construction manager Warren (King), who worked hand-in-hand with a study manager and also a processing plant manager. And for the next six months we developed a really solid feasibility study.”
With the money raised, Red 5 commenced construction on King of the Hills in October 2020, soon after the project’s feasibility study was published. Williams said this could never have happened if the equity raise hadn’t occurred when it did.
Red 5’s bold move paid off in other ways, too.
“The environment enabled us to have fixed-price contracts, which shielded us from subsequent inflationary cost pressures,” Williams said.
“With our processing plant manager, we were able to cherry pick all the key items – such as the SAG (semi-autogenous grinding) mill, the screens, the crusher – in 2020. So the budget number of $226 million is a 2020 price.
“If we were to do that in today’s climate, we haven’t calculated it but I’m sure the cost would start with a three, not a two.”
To maximise King of the Hills’ potential, Red 5 not only sourced the processing plant’s necessary components ahead of time, but also ensured they were scalable.
The company also considered the plant’s operating.
“It’s a 4.7 million-tonne processing plant that has more upside,” Williams said. “It’s built for scalability and one eye on the future, and we’ve been able to deliver on time and budget, which is quite miraculous given the state of the world.
“From the feasibility study, the plant’s processing costs were less than $12 per tonne, which gives us a strategic advantage over other producers within the region.
“Why we’re able to produce it so low is, one, the sheer economies of scale. Two, the metallurgical properties of the ore are very favourable – it’s free milling, there’s high recoveries and there’s low power consumption for the rock.
“Thirdly, we’re in close proximity to and have tapped into APA’s Goldfields gas pipeline, so we’ve got a lower cost of power than we otherwise would have.”
Red 5’s initial goal is to achieve a nameplate production of 4.7 million tonnes per annum (Mtpa) of ore at King of the Hills, which will be delivered across a 16-year mine life. From there, the company will be pushing to elevate the project above 5Mtpa.
But having just poured first gold, the next step is to execute the ramp up of King of the Hills.
“Once we’ve got the first gold bar, then we need to produce more gold,” Williams said. “In the September and December quarters (we’re aiming for) a successful ramp up of the underground and open-pit mines.
“(Then) next calendar year, we’re forecast to generate positive cash flow which we will use to expand exploration activities, where we’ve got a really strong organic pipeline.”
In the four-and-a-half years that Red 5 has owned King of the Hills and Darlot, it has accumulated a strong tenement package. Williams said there were plenty of opportunities to expand the current resource.
“We’ve got some great targets, some low-hanging fruit to be able to increase the resource base in the underground,” he said. “It’s been mined for eight years, both by us and St Barbara, and is open in all directions.
“We also have our satellite open pits in close proximity to King of the Hills and also some great targets at Darlot, including Ockerburry, Cables and Mission.”
Red 5’s Darlot exploration strategy is to establish long-term satellite ore feed for the King of the Hills processing hub, mined from the Darlot underground mine and surrounding deposits.
Red 5 contracted Redpath Australia to accelerate mine development at Darlot in October 2021, focusing on the Burswood, Pedersen, Middle Waters South, and Thompson mining areas.
Williams said Red 5 was delighted with Redpath’s performance so far as the company looks to further solidify Darlot.
“We have a significant resource base of 1.3 million ounces at Darlot and we needed to accelerate development to access these new mining areas. Redpath has started on time, and they’ve hit all their targets,” Williams said.
“This gives us access to new stopes, which are more reliable than the remnant stopes that we have been mining over the past 12–18 months. It also gives us access to new ore tonnes that we can process economically at King of the Hills.”
Red 5’s ideal scenario is to have the Darlot and King of the Hills open-pit and underground mines operating in unison, feeding the 4.7Mtpa King of the Hills processing plant at the same time.
Until now, Red 5 has fed mined ore from the two projects into Darlot’s 0.83Mtpa processing plant, which the company aims to progressively scale down and cease operation.
“We will process the ore tonnes together, so they will be comingled,” Williams said. “We know that works because the strategy when we purchased the assets was to have the trucks going from King of the Hills to Darlot, which was successful. And we’ve processed the ores together at Darlot, so we know they are compatible.
“So out of the 4.7Mtpa, we’re looking at 3Mtpa from the King of the Hills open pit, 1Mtpa from the King of the Hills underground and about 500,000–700,000 tonnes per annum at Darlot.”
Through King of the Hills, Red 5 is realising its goal of becoming a mid-tier Australian gold producer. And given the operation’s potential, the company won’t be content on finding a comfortable slipstream.
King of the Hills is an asset brimming with opportunity and discovery. It will be fascinating to see what Red 5 makes of it.
This feature appeared in the June issue of Australian Resources & Investment.