RED Details

FY21 Key Results Highlights: Red 5 Limited (ASX: RED) is a gold production company with high-quality assets in Western Australia’s Eastern Goldfields, majorly holding Darlot Gold Mine, King of the Hills, and Mapawa Gold Project. 

• Revenue Details: In FY21, the company reported revenues of $173.36mn, down 13% year over year.
• Reported Net Loss in FY21: Net loss from continuing operations after tax stood at $9.48mn, compared to a profit of $10.64mn reported in FY20. Net Loss Attributable to equity holders stood at $43.25mn in FY21.
• Divestment of Siana Gold Project: RED gets US$19mn cash and 3.25% royalty contributing to ~US$34mn upon completion, along with saving annual cost of A$6mn.
• 50% Completion of KOTH: Among the top 10 largest ore reserves in Australia, King of the Hills- a project of 2.04Moz (16 Year Life-of-Mine) is running on schedule and under budget.

Revenue Highlight (Source: Analysis by Kalkine Group)

Key Risks: Besides COVID-19 implications, the company’s performance gets affected by the changes in the economic, political and market conditions. Being in a capital-intensive industry and dependent on the fluctuations of gold bullion market, Red 5 Limited’s business is bound to get affected.  

Outlook: RED suggests production of 62,000oz-72,000oz Darlot in FY22 and AISC of $1700/oz - $1900/oz from it KOTH in FY23. Though there is cost saving due to Divestment of Siana Gold Project, but it also reduces the operations for future.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the six months, the stock has provided a positive return of ~23.71% and is trading below the average 52-week price level band of $0.155 and $0.366. The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a downside of low double-digit (in % terms). For the purpose of valuation, peers like Calidus Resources Ltd (ASX: CAI), SSR Mining Inc (ASX: SSR), Gold Road Resources Ltd (ASX: GOR) have been considered. The company can trade at a slight discount to its peers’ average, considering its risks associated with currency fluctuations and government regularity risks and financial condition. Considering the company’s decline in FY21 revenue, divestment of Siana Gold Project (Philippines), current trading levels, valuation, and key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $0.23, as on 8 September 2021, at 10:30 AM (GMT+10), Sydney, Eastern Australia.

RED Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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