Karora Resources (KRR) - Mid Tier Gold Producer in the Making
Karora Resources is a multi-asset mineral resource company focused on the acquisition, exploration, evaluation, and development of precious metal properties. The company's premier sites include the Beta Hunt Underground Mine and Higginsville Gold Operations. The company's vision is to become a sustainable high-quality, mid-tier producer.
We met with Paul Huet, Chairman, and CEO, Karora Resources, who joined us from Australia. He has a strong background in capital markets, engineering, and operations in the mining industry. His educational credentials include a Mining Engineering Technology degree from the Haileybury School of Mines, Ontario, and an Executive degree from the Stanford School of Business. He currently serves as a member of OACETT as an Accredited Director and Science Technologist.
Karora Resources (formerly known as Royal Nickel Corporation) is a mineral resource company that was founded in 2006. The company is listed on the Toronto Stock Exchange (TSX-V: KRR). Founded in 2006, the company is headquartered in Toronto, Canada. The company's major operations are based out of Western Australia.
The company started its production in 2020 and was able to reach a 100,000oz gold output. The company recently published a press release that highlights the growth in production numbers, where they have consistently met the production and cost guidelines for 7 quarters in a row.
The company recently acquired the Higginsville mill, which was followed shortly by a round of financing that raised a capital of $18M. Additionally, the company entered a bought deal with Heywood.
Karora Resources went through a major restructuring in 2019 that saw changes across the board, the executive team, and the shareholders. The company's main focus is on reducing costs, royalties and improving GNA (Good Neighbour Agreement) productivity rates.
Karora Resources has been successful in growing its market cap from $8.7M in June 2019 to $80M in Q1 2021. The company is currently valued at $550M. In the past 2 years, the company was able to grow its institutional shareholder base from 5% to 55%-60%, leading to further de-risking of their assets. Eric Sprott, a Canadian asset manager and owner of Sprott Inc. holds 9.9% of Karora Resources.
The financing carried out by Karora Resources in September 2019 featured warrants that resulted in a raised capital of $12M. These warrants are due in Q2 2021.
Karora Resources has consistently improved its production profile, expanding its yearly output to 100,000 oz. This was achieved with a new team on the ground, utilization of new equipment. This also resulted in a significant drop in the company's greenhouse gas emissions. The company is looking for additional sources to increase its supply. At the Beta Hunt mine, the company has discovered intercepts with coarse gold pods.
The company has been publishing data on its assets on a regular basis and has made significant strides in its PR and marketing strategy.
Karora Resources currently has $80M in cash reserves and is fully funded to carry out its drilling program.
The company is looking to add a second ramp to its existing infrastructure to keep up with the increased output. The new ramp is priced at around $45M and will help double the company's production volume. The company is also looking towards the development of a second mill to process the additional supply.
They are looking to grow the Higginsville plant to a 2.5Mt production capacity, which is estimated to cost between $45M-$50M. Additionally, the company is looking to add new equipment to their site which will cost $10M-$12M.
The company looks to ramp up production to 105,000oz-115,000 oz in 2021, 120,000oz-140,000oz in 2022, stepping it up to 150,000oz-170,000oz in 2023. Eventually, the company aims to reach 185,000oz - 205,000oz production by 2024. This comes out to an average 20% growth on a YoY (Year-on-Year) basis.
The average grade at the Beta Hunt Mine is 2.6g. Since these are wide deposits, the company is able to bulk-mine the resource. The company will continue to process the highest grade in the existing plant until it reaches its capacity before employing the second plant.
Karora Resources put out a resource and a reserve in 2020 and the growth numbers are majorly supported by their existing assets. The company has been able to drive the costs of mining from $1200/oz-$1300/oz to $1000/oz, and is aiming at a $900/oz target.
In 2020, the company made 3 new discoveries through a 15M drill program. These discoveries include a gold reserve in the Football zone and a nickel discovery. The company plans to explore the Lake Powell area and have a large study planned in the region. Between 2022-2024, the company intends to spend $80M in drilling and exploration.
Resource and Reserve
The company temporarily paused mining operations at the Mt. Henry Gold Mine and is currently utilizing the supply at the Baloo open-pit mine and the Beta Hunt Mine to feed their plant. This is due to the fact that Mt. Henry has shown higher than average grades and the company plans to take reserve this high-margin asset for the shareholders. The Mt. Henry Gold Mine has a potential reserve of 1Moz.
The company's resource originally excluded the Larkin Zone discovery and the current sites have shown the presence of 11% in excess nickel deposits. This has led to savings ranging from $35/oz-$45/oz quarterly based on a 2.9% nickel credit.
The Beta Hunt mine has historically functioned as a Nickel mine in the 1930s and 1950s. The company does not require additional resources to recover nickel. They already have a crew that is responsible for mining with air lakes. The estimated cost-saving by selling nickel amounts to $8.4M per 200,000oz.
The company is focused on utilizing nickel to further drive down operating costs on a per ounce basis. This will also help the company endure sudden dips in the gold's market price.
Karora Resources is currently in talks with multiple bankers to restructure its $30M debt. The company plans to evaluate various options over a 2 month period and work towards gaining a line of credit for their operations.