Silver Lake Resources (ASX:SLR)
made a bold move by securing an 11% stake in Red 5, at an approximate cost of $70 million. This decision, however, triggered nervous investors who witnessed a $75 million reduction in the company's share market value.
On Monday afternoon, Silver Lake unveiled its strategic acquisition, causing its shares to plummet to 88 cents by the end of trading, reflecting an 8.3% decline in market value to $823 million.
In contrast, Red 5's shares surged by over 20%, reaching 26.5 cents and pushing its market value beyond $916 million, up from $762 million. Silver Lake now owns approximately 383 million Red 5 shares, valued at around $100 million.
Red 5 boasts the rapidly improving King of The Hills gold mine in Western Australia, which has witnessed a substantial increase in production in recent months, currently operating above its planned capacity.
In its ASX release, Silver Lake emphasized that the acquisition of Red 5's stake is a strategic investment, highlighting Red 5's ownership of the King of the Hills operation and its broader presence in the Leonora district, Western Australia.
Silver Lake's robust cash balance, generated organically, and projected free cash flow provide it with the agility to capitalise on opportunities as they arise. The company remains committed to its strategy of becoming a larger, lower-cost, and longer-lasting business by making investment decisions and deploying capital into organic and external opportunities.
Silver Lake's diverse portfolio includes assets concentrated in Western Australia, such as the Mount Monger and Deflector operations, supplemented by the growth potential of the Sugar Zone mine and extensive, yet unexplored land holdings in Northern Ontario, Canada.
However, the Canadian operations have been placed on care and maintenance due to financial losses, requiring further work, drilling, and capital expenditure to transform them into profitable ventures.
Earlier this year, Silver Lake faced disappointment as it lost the prolonged battle to Genesis Minerals for the Leonora assets of St Barbara, primarily the Gwalia mine and associated operations. Both companies aimed to expand their presence in the Leonora region of the Western Australian goldfields.
As Silver Lake Resources takes on Red 5, the question remains whether Genesis Minerals will stand by or choose to acquire a stake in Red 5 to maintain a competitive edge.
All three companies are scheduled to present at the Denver Gold Forum in the United States this week.