Redcastle Resources [ASX:RC1]
Metals & Mining
We initiate coverage on Redcastle Resources (ASX: RC1) with a 12-month target price of A$0.025 – representing a 151% upside from the current share price of $0.01. RC1 is a gold exploration company that owns the Redcastle Gold Project in the prolific Goldfields of Western Australia, approximately 60km east of Leonora and 60km west of Laverton. The project has easy access to the established infrastructure in the northeastern Goldfields, including sealed and unsealed roads to nearby towns and gold mills, providing the company with a lucrative tolltreating optionality.
The Redcastle Gold Project has 10.6koz of gold at 3.06 g/t in JORC-compliant MRE, which is 90% in the higher confidence Indicated category and only to a depth of 50m from the surface. To ensure there were reasonable prospects for eventual economic extraction of the resource, the MRE was reported inside a conceptual ‘open pit’ based on a conservative gold price assumption of AU$3,100/oz (current gold prices are > AU$4,000/oz) and a metallurgical recovery assumption of 92%, which was shown through metallurgical testworks on a subsample of the main RC drilling at the deposit.
Redcastle Gold Project has massive exploration upside potential
Using all the drilling data at Queen Alexandra, RC1 was able to define a large and very high-grade Exploration Target at QA, estimated at 140koz at 8 g/t gold in the lowercase and 380koz at 10 g/t gold in the uppercase. A smaller Exploration Target at Redcastle Reef was also estimated at 20koz at 2 g/t gold in the lowercase and 40koz at 2.5 g/t gold in the uppercase. While the Exploration Targets defined at QA and RR suggest significant potential beyond the currently defined resources at QA, it's important to highlight that the Redcastle Gold Project includes 15 additional highly prospective target areas, which exhibit similar geology to QA and RR, offering substantial discovery potential through future drilling programs.
A bullish gold market outlook bodes well for RC1
The diverse roles that gold plays across different sectors—from cultural to financial to industrial—ensure that demand remains relatively stable even as prices increase. This resilience is a key factor in the ongoing strength of the gold market. As such, while some analysts suggest that gold may be overvalued and susceptible to a short-term pullback, the long-term trajectory for gold prices is expected to remain positive, supported by ongoing demand from various sectors and a gradual decrease in real interest rates.
Valuation range of A$0.022–0.028 per share
To arrive at our fair valuation of RC1, we have employed a Sum of the Parts valuation methodology by adding the discounted value of FCF expected from a toll-treating of the currently defined resources at QA plus the value of our estimate of Redcastle Gold Project’s Inferred resources using the current peer group average EV/weighted average resource multiple of A$67.4/oz gold. The key risks to our investment thesis include commodity price risk, funding risk, execution risk and geological risks.