Why the Red 5 (ASX:RED) share price is soaring higher today

The Red 5 Ltd (ASX: RED) share price is soaring higher today following possible formal contract negotiations. Here's the latest.

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The Red 5 Ltd (ASX: RED) share price is soaring higher today following the announcement of possible contract negotiations with Macmahon Holdings Limited (ASX: MAH). At the time of writing, the gold producer's shares are up 5.8% to 18 cents.

What's driving the Red 5 share price higher?

The Red 5 share price is on the rise after providing investors with a positive update this morning.

According to its release, Red 5 advised it has signed a letter of intent with Macmahon for mining contract services at its King of the Hills (KOTH) Gold Project. This follows an in-depth tender process that saw a number of contracting companies compete for Red 5's open pit and underground mining activities.

Pending the final agreed terms, the proposed contract will run for an initial 5-year period beginning in the March quarter of 2022. Formal documentation of the contract is expected to be completed in the June quarter of this year.

Macmahon estimates that the award will generate revenue over $650 million over the life of the deal.

In addition, Red 5 will appoint experienced mining engineer Andrew McRae as the KOTH mine manager. McRae has held senior management roles within the industry over the past 10 years. Most notably, he served in the leadership team at Evolution Mining Ltd (ASX: EVN)'s Cowal Gold Mine.

Quick take on the KOTH Gold Project

Wholly-owned by Red 5, the KOTH Gold Project is situated within the Eastern Goldfields region of Western Australia. The gold mine has a 16-year mine life, with over 2.4 million ounces of ore reserve, and 4.1 million ounces of mineral resource. The large open pit and underground mine is expected to have its first gold pour in the June quarter of 2022.

Words from the managing director

Red 5 managing director Mark Williams touched on the contract award, and the inclusion of its new KOTH mine manager:

Following a rigorous tender process, we are delighted that, subject to final agreed contract terms, Macmahon will be appointed as mining contractor for both the KOTH open pit and underground mines. We see a number of important operational efficiencies and cost benefits in having both mining operations managed by a single contractor.

We are also very pleased to welcome Andrew McRae to the Red 5 team as the KOTH Mine Manager. Andrew brings a wealth of experience and knowledge from his time at the Cowal Gold Mine and he will play a key role in planning and preparations to ensure we remain on commencing activities at the KOTH Gold Mine in early 2022.

The Red 5 share price has fallen 40% over the past 12-month period.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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