Gwen gave update last evening Red Eagle (TSX: R)
BUY; Medium Risk
Red Eagle’s share price has taken a beating so far this
month, falling from $0.64 as low as $0.45 yesterday.
Having been to site, knowing management well, and understanding that the market’s desire for
immediate success doesn’t always jive with the realities of underground mining, I see this slide as a
buying opportunity.
From my understanding, the challenges at San Ramon are not unexpected. I went through this in
detail in the letter on
May 29 In short: it has been more difficult than expected to develop working stopes in the gold bearing structure, which means ore output is currently only about half of what was expected. That is set to change by mid July, when development on the 150 level should double the number of active stopes.
Miners have also had to use more conventional stoping than expected; Red Eagle had assumed mechanized cut and
fill. Conventional stoping is slower, though it does minimize dilution. And the decision to incorporate paste backfill has also slowed progress, while improving underground stability
in general.
All of these hurdles will be cleared; it’s just taking some time. The market, an ever impatient beast, doesn’t like having to wait for success, but underground mining is not simple. At this point none of the challenges are fundamental in nature: the grade and model of the deposit is supported and the mill is operating very well. It’s just taking time to ramp up.
I am looking to use this price weakness to average down my Red Eagle cost base, but I am not sure the slide has stabilized as yet, especially given that the weak summer months are just getting underway. When I have some confidence that the price is stabilized or starting to strengthen, I will average down.