Matthew Gordon caught up with Matthew Salthouse the CEO of Kainantu Resources, a junior gold explorer focused in Papua New Guinea (PNG).
He updated Kainantu Resources' story since the last time he spoke with us back in May 2021, indicating that his company is at “an inflection point” and proceeding into its second stage of growth.
Kainantu Resources is a gold-focused mining company with activities in PNG. The company intends to build shareholder wealth by successful field operations and value accretive corporate initiatives.
Kainantu is guided by a board and management team with a proven track record in the region. The company also has an established in-country partner. Kainantu is publically traded on the CVE index under the ticker KRL.
Management And Board
In addition to the CEO, the management team at Kainantu includes Bart Lendrum, CFO; Giuseppe Perone, Corporate Secretary; and Graeme Fleming, Principal Geologist. The Company Board of Directors includes Marcus Engelbrecht, Geoff Lawrence, and David Loretto, as well as Matthew Salthouse.
Kainantu Resources is currently strictly focused on exploration in PNG. The company has three main assets KRL North, KRL South, and the recently acquired May River project. All three projects offer great potential for high-grade gold and copper ore deposits, as seen elsewhere in the vicinity. The KRL assets are located close to the producing K92 gold mine, which consists of one of the highest-grade ore bodies anywhere in the world and is producing 144,000 oz. of gold per year.
Kainantu’s Current Financial Situation
Stackhouse indicates that the company currently has about $US 1.5 M in its coffers. This is sufficient for the company’s current activity. The company is spending about $120,000 per month. Additional financial measures may be needed as the company moves into its new growth phase as long as they appropriately protect current shareholders.
Just recently, the company announced that it has acquired the May River project. Additionally, plenty of on-the-ground work is being accomplished at KRL North and South. At KRL South, the company is engaged in prospect delineation as supported by sampling and geochemical work.
Kainantu has firmed up the East Avaninofi and Yaoro Ridge prospects at KRL South. At East Avaninofi the company has identified a 40g/t sample, in addition to completion of a lot of geological mapping work. The company now sees quite a bit of similarity between that prospect and the nearby K92 mine.
Between now and next year, the key thing for the company is to perform exploration geophysical work. It would not be a prudent move to commence drilling without the results of key geophysical studies, despite the good results from the geochemistry. This work would likely cost about $750,000. The CEO is looking to collaborate with others operating in the region to get the geophysical work done.
Raising Money for Drilling
Salthouse admitted that he has insufficient funds to commence drilling. The company is likely to come to market with a good story to raise capital. In addition, it has been in discussions with the APEV group, a major company shareholder, who most likely has the capacity to provide some funding, whether that’s debt or equity, to support a drilling program.
The Potential for Shareholder Dilution
There is a danger that a collaborative effort might result in shareholder dilution. Salthouse addressed that by saying that at the moment the company is simply engaging in conversation about collaboration. The company has strong pre-existing relationships with a lot of the majors and operators in PNG. At this stage, the CEO doesn't think that he is “going to give away the farm” so to speak, but he does indicate that he will assess all options as they become apparent.
Do You Want To Be Taken Over?
Given the company’s situation with appealing assets and low cash on hand, it may be tempting to other interests as a takeover target. For example, Kainantu’s KRL North asset, which sits right adjacent to K92’s current operating ventures, may be of interest to K92. Salthouse indicated that Kainantu does share information and may see the opportunity to work together.
In addition, there are other companies with larger balance sheets who may have an interest in some form of dealmaking. The CEO reiterated that he and the board are looking to build the company and create shareholder wealth. In the process of creating shareholder value, if someone offered Kainantu a deal that is accretive and made sense for M&A, then clearly the company would look after the interests of its shareholders.
By the same token, Salthouse indicated that the management and board enjoy what they’re doing. The company has built a set of pre-early-stage exploration assets into something that is compelling and beginning to emerge as a corporate vehicle. This may well be of interest to other companies, not necessarily as a take-over target but potentially as an entry point for other opportunities in PNG. In summary, he stressed that Kainantu is looking for whatever value can be extracted from the company’s asset base and seeing where that leads from a corporate point of view.
Is a Big Move Coming Up?
Indeed, Salthouse admitted that Kainantu intends to do “something big”. Management has always been desirous to leverage other opportunities into Kainantu, whether they are in PNG or more globally located. He hopes that Kainantu has been successful enough to have caught the eye of some of the bigger participants in the industry. A key milestone is now to look at opportunities that allow for collaboration with other companies in the region to bring a resource into the company. The CEO actively promotes that concept with lots of other people who operate in Papua New Guinea.
How Would Kainantu Finance a Big Transaction?
Bringing in a resource or reserves would require a substantial amount of capital, which Kainantu currently does not have on hand. Some sort of collaboration is essential. Salthouse envisions it as “an inverse joint venture”, in which his company would build out an asset and pay back the partner over time or, alternatively, via an immediate M&A deal. The CEO is very confident the company has the right team and the right credentials to be able to raise capital on the right transaction.
An advantage that the company has is that it already has a very strong social license in PNG, which is comforting for other operators in the country who are looking to potentially partner with juniors. Kainantu has consistently delivered positive outcomes for stakeholders in PNG, and the CEO thinks that gets noted.
The May River Project
The company announced in June 2021 that it had acquired the May River Project, located in the Frieda River, PNG district. The May River acreage, consisting of three separate tracts, was acquired from Hardrock, Ltd. and Niuminco, Ltd. May River is located in a highly prospective copper region. Kainantu intends to continue to build a project plan to get on the ground there with a team in 2022.
There are two operating agreements at May River. One is with Niuminco, which sets Kainantu up to acquire all of that company subject to them confirming clean title to the ground. If Niuminco can’t confirm a clean title, then Kainantu will potentially step in and take the acreage in any case. The second is an option agreement with Hardrock. The initial step there is to complete a field study, which is now done, and exercise an option to take ten percent of the company. Once the ten percent is acquired, Kainantu will have an option to acquire the remainder of Hardrock over the next twelve months.
Over the next few weeks and months, Kainantu intends to look at a few more deals like May River. These deals may be structured as simple commercial transactions not involving equity or something more detailed, as the conversations evolve.
Summary of the CEO’s Business Plan
In summary, Salthouse shared that building blocks to create shareholder value are being put in place. The company is now particularly looking to obtain something with a resource already in place. The investment community should be on the lookout for news on that front from the company.