Karora Resources (KRR) - The Making of a +$$Billion High-Grade Gold Producer
Karora Resources recently announced a 334% increase in proven & probable mineral reserves to 1.33Moz and 167% increase in measured & indicated mineral resources to 2.52Moz.
This is the first consolidated Mineral Resource and Reserve Estimate for Karora across their 2 primary assets in Beta Hunt and Higginsville, completed on schedule despite significant drilling delays associated with COVID-19 precautions during 2020.
We catch up with Paul Huet, CEO of gold producer Karora Resources having previously spoken in November '20. We first met Karora in September 2019 and we first applied the phrase "the turnaround story of 2020' back in March 2020. We went early, but you could see it coming. To achieve that accolade, Karora has achieved a lot of things in 2020, but also had plenty to overcome during the year.
2020 Review: Challenges & Achievements
The year started with fires, and then floods, then dealing with COVID, along with the rest of the world, but despite all those challenges, Karora Resources has made great progress as a company. Karora has made changes in the organisation, from the shareholder base and also changes to the board and the executive team, changed their focus and now have control of their company. Karora Resources is now focused on Gold, having previously been primarily a Nickel company as they have now divested the large Canadian Nickel asset, Dumont. Karora has had to pay about AUD$2M a year in G&A every year up until that point, but they will still participate in the upside when Nickel prices go up as the sale of their share to Waterton was conditional. They received AUD$11M on the day they did the deal.
Karora has re-negotiated 3 separate Royalties. The 3% Royalty at their new Spargos property has now been removed. All the Royalties have contributed to the new resource and reserve and cost savings have been made on G&A, improvements and productivities.
The share price for Karora has increased by 75%-85% in just one year and they’re trading over 4M a day now. The acquisition of Spargos has been finalised at a good discount for the shareholders and the drill hole results of 29.8g/t over 19m, followed up by another hole of 27g/t over 15m have been announced. The company also has added 3 new analysts coverage, Kormac, Canaccord and GMP.
It’s been a busy first year for Karora. They had a target of 90,000oz to 95,000oz year one, which they pleased that they are going to achieve.
"Unleash the Beast": Beta Hunt & Coarse Gold
Karora started mining near the coarse gold deposits at Beta Hunt, ‘The Beast’, and they initially discovered course gold nuggets of 2,000oz which quickly increased to 2,500oz. They are actively mining in those areas now and plan to continue to do so for the whole of 2021 to learn about and understand the mining area. However, as exciting as the retail investors see the course gold, institutional investors need to know that Karora can make money without the course gold nuggets at Beta Hunt. Therefore Karora needs to prove that they can continually deliver at a consistent pace there to demonstrate that they’re on track, in control, and delivering, and that they’re making money. That comes from the consistency of the bulk gold processing, hitting an average of around 3g/t. The course gold is a very welcome bonus, but the inconsistency of finding it makes financial planning harder and means the strategy is clear. Bulk, bulk and more bulk.
Karora has put out the resource and reserve statement and plans to put out a mine plan and production map early in 2021, but first they had to first have the resource and reserve statement in order.
Spargos was excluded from the resource and reserve statement and Karora are expecting to be mining there in the second half of 2021. They expect that the grade could be higher there than at the underground mine at Beta Hunt. The tonnes are equally distributed 50% Higginsville, 50% Beta Hunt, with the grade at Beta Hunt at about 2.6g/t or 2.8g/t. Spargos has potential for a higher grade than at Beta Hunt but as an open pit mine rather than underground, which means the production cost per oz is less.
Getting the Business Right: Preparation for 2021
Karora will be putting out a growth plan in the first quarter of 2021 as they now have their first complete reserve statement for the whole company. They believe that they have set the stage for organic growth by producing Royalty, producing coarse gold, bringing in the right people, acquiring the right equipment and getting the mill where it needed to be.
Now they can really start to focus on the mining rather than all the other issues that they’ve had to deal with in 2020. Karora has a track record of doing what they say they’ll do and people want to see them focused on the right things in 2021, which is the drilling and finding Gold at their multiple assets.
Reserve & Resource Numbers, & Split of Higginsville
The new reserve statement shows that the reserve has grown to approximately 1.3Moz of Reserve which is due to reduced Royalties, reduced costs and also the drill results, not just due to the gold metal price.
In the new Reserve statement, Higginsville has been split into Higginsville Central and Higginsville Greater and for the next 2 years, they will be mining in the Higginsville Central area. Higginsville Central is the 20km block around the mill and excludes Spargos, but Greater is beyond that.
Spargos and Beta Hunt Larkin have both been excluded from this new Reserve statement because they don’t have all the information they need just yet. They expect both to be a better grade than they’re currently mining today. Karora is doing everything they can to accelerate both of these into a plan as they want to be mining in Larkin and in Spargos in 2021.
2021 Goals: Reshaping the Business
In 2021, Karora plans to complete the work on mill expansion in the first quarter which steps up the mill for the second half of the year immediately. There is also a larger mill expansion they’ve been looking to do which they will be able to complete in 2 stages.
Karora aims to be mining better grades in 2021 and they will be putting out some numbers in the early part of the year. They were aggressive in their drilling in 2020 at the rate of around AUD$15M and this is expected to increase to AUD$20M, all funded from operations.
They believe it is important to have a corporate strategy, and that they follow their strategy, they deliver and are transparent as a company.
Eye to Eye: Standing up to Peers
Karora is proud of the accomplishments their team has achieved. They have a team in North America and a team in Australia who have been carefully selected and are very committed to the company.
The share price is very important and the increase in the share price of between 75% to 85% in the first year was fantastic for the company. Karora believes that all the fundamentals are falling into place and that 2021 is going to be a great year for them. Once they put out their growth plan, it will be the start of something very exciting for the team and their shareholders.
We look forward to our next conversation with Karora Resources. We’re interested in their guidance for next year, their growth plan, and to see what they do with these higher grades in terms of reducing costs for the company. 2021 looks to be an exciting year for Karora Resources.