Operator labour shortages that delayed production from Red 5's new, small Darlot satellite mine in WA remained a risk to the planned 2022 June quarter start-up of the A$226 million King of the Hills (KOTH) project, COO Jason Greive said this week on a results conference call.
The experienced former Evolution Mining, Barrick Gold and Rio Tinto manager, who joined Red 5 six months ago, indicated higher pay and retention costs for mine workers and managers posed a worsening threat to an industry that has been a shining light for the Australian economy amid pandemic-related global economic contraction, and China's banning of selected Australian imports.
"Anyone in this industry at the moment would be foolish to deny the reality of the labour market and the risk it presents to all projects and operations," Greive said on the March-quarter call.
"Attraction and retention of talented people is absolutely pivotal to our business and we recognise that."
WA premier Mark McGowan reportedly described calls from other state and federal politicians to relax Australia's international travel restrictions and allow home quarantining as "mad" and a "a recipe for disaster" as infection rates in some countries continue to climb.
WA's economy has been insulated from wider economic turmoil by mining and farming, though both sectors are facing problems from a restricted labour pool.
This has been echoed on mining company March-quarter conference calls, with suggestions the shortages are sure to add to inflationary cost pressures on new and existing mines, and possibly cause increasing delays for projects, in coming months.
Red 5 said in early March it had signed a letter of intent with Macmahon Holdings to provide surface and underground mining services at KOTH for five years and Greive said on this week's call contract negotiations were still being finalised.
"Across the board we're looking at salaries, and bonuses and rosters, as well," Greive said.
"On top of that we're working with a conglomerate of expert recruitment agencies at the moment on a targeted recruitment strategy for KOTH as part of the operational readiness plan.
"At KOTH, in particular, we believe the longevity and profile of the operation is already attracting the interest of some very talented professionals in the industry and that's been evidenced most recently by the fact that we've been able to get Andrew McRae in out of Evolution's Cowal mine as our mining manager.
"KOTH will offer a very attractive roster system, industry leading salaries [and] bonus system. It's got a brand new, excellent camp, and it's a short and efficient transit from Perth. It's got everything going for it, and it will offer employees very long term security associated with … a high profile gold mine that's got a 16-year mine life."
Red 5 had spent $43 million of KOTH's budgeted capex (19%) at the end of March, when it had cash and bullion of about $80 million. It expects to start drawing down on a secured $160 million debt facility in the current quarter.
As well as the $175 million debt (with $15 million cost-overrun facility) Red 5 has just raised $60 million of new equity funding for KOTH and investment in exploration and development at Darlot.
The company also hopes to realise more than $50 million from the sale of the Sianna gold mine in the Philippines.
KOTH and Darlot, acquired in 2017, have the potential to make Red 5 a 250,000-300,000ozpa producer from 2023.
KOTH project manager Warren King said Red 5 remained confident of pouring first gold from the new plant in the June quarter next year. He said $155 million of contracts had been committed, the plant design was 75% complete and long-lead items such as the SAG mill and crushing equipment would start arriving on site in the next few months.
Greive confirmed Red 5's detailed mine planning and scheduling as part of the operational readiness work would aim to "capitalise on the significant upside capacity [6 million tonnes per annum-plus versus nameplate 4Mtpa] we believe exists in the KOTH processing plant".
Great Western is the first of what could be a series of new satellite openpits feeding the Darlot mill, which is getting a 50-50 mix of ore from the Darlot underground workings and Great Western this quarter.
The problems smaller contractor Pit N Portal continues to have with operator turnover that delayed the start of Great Western ore supply to Darlot until the end of March meant Red 5 had to use lower-grade stockpiled material in the March quarter, which translated into a $408/oz hit to site AISC. That included a Great Western "ramp-up cost" of $226/oz that was included in AISC rather than being capitalised.
Greive said full-year production guidance for Darlot remained at the lower end of the 80,000-85,000oz revised annual target.
"[We're] not anticipating any further drawdown in stockpiles at this point," he said.
"I wouldn't say [labour issues are] 100% resolved. They do remain a risk.
"They remain a risk across the entire industry at this point. We are working very proactively to resolve those with our contractor. We have seen an improvement in the manning rates, in particular over the last three weeks."
