K92 Mining (KNT) - 350,000 oz Gold Production a Near-Term Target

K92 Mining Inc. is a mineral exploration and development company operated by an experienced team of mining professionals who have been collectively involved in building over 20 mines and $5bn in buyouts. 

We caught up with John Lewins, CEO of K92 Mining Inc.  John has over 35 years of experience in the mining industry. He has served as an Executive General Manager, Director, and CEO at a number of mining companies including First Dynasty Mines, Platinum Australia, MIM Holdings, and African Thunder Platinum. He also serves as the Chairperson for the K92 Health and Safety Committee. 

Company Overview

K92 Mining owns the Kainantu Gold Mine located in the Eastern Highlands province of Papua New Guinea. The Kainantu Gold Mine is a high-grade underground mine within a ~860 km2 land package in a region known for Tier 1 deposits. 

K92 has recently doubled throughput to 400,000 tonnes/year, which increases annual production to more than 120,000oz/year and they are one of the lowest cost producers in terms of cash costs and all-in sustaining costs in the world right now.

K92: World Tour, Market Perception, & Number Change

John Lewins has recently travelled from Australia to spend time on-site at the Kainantu mine in PNG looking at progress made in areas including underground expansion and the new and expanding infrastructure such as ventilation and power etc. K92 completed the expansion to double their throughput last year and are now looking at opportunities to fine tune the operation to increase capacity even further. They are also expanding the camp and warehouse capacity alongside.

John then spent a week in Port Moresby meeting with the government, government departments and ministers plus industry peers after which he travelled to Vancouver to meet with investors and participate in a couple of conferences in North America.

Covid Effects, Financial Approaches, & Short-Term Goals

K92 had a record throughput in terms of tonnage this last quarter as a result of the expansion and they were up over 50% from the same quarter last year with Gold equivalent production of 25,000oz.  There is a fair amount of expenditure planned, about $30M this year on the next phase of expansion, and on sustaining capital, new equipment, etc, which is also about $30M.

Due to Covid regulations, Australia is extremely focused on controlling movement out, but especially into Australia and has restrictions on the number of people that are allowed to move in and out of the country. In Papua New Guinea, there is an agreement with the federal government, to move people working in the resource industry which is key to PNG, responsible for about 35% of GDP and over 85% of exports. The Australian Government and the PNG government were keen to make sure that the resource industry could operate normally, whilst ensuring that protocols were in place to protect both countries. As a result, K92 has approval from the government to move people considered outside of the cap which applies to Australia and allow movement to PNG without the quarantine requirement and this has been really helpful to the company.

K92 is a CAD$1.6Bn company and a 100,000oz producer today. They are cash producing, they haven't diluted shareholders for 2-years, and they have no debt. The company aims to grow from a 100,000oz producer to become a 350,000oz producer. 

Kora Resource

K92 now has the resource they need to be able to look at this next step. They have increased  throughput to 400,000 tonnes/year with the last expansion at Kora and are now putting in a brand-new plant to expand on the ground to a 1Mt per annum. In order to do that, they had to convert more oz into measured and indicated and currently have 6 rigs working underground plus a couple on the surface. A big focus is converting inferred oz to measured and indicated because that's what goes into your Feasibility Study and at the same time, some of the drilling is also expanding the resource. The resource as it was last year, was defined as 1.1Moz of measured and indicated 10.4g/t, 3.7Moz of inferred at just over 9g/t. This is a high-grade resource and in order to put that into a definitive Feasibility Study, they need 2Moz plus of measured and indicated so have been very much focused on that underground. The drilling for the updated resource will be completed in October and in November, they will come out with an updated resource. K92  believes they will get beyond the 2Moz of measured and indicated and another 3Moz plus of inferred.

The Feasibility Study is now looking at 1.2Mt rather than 1Mt and it's around 350,000oz and this is what drives that expansion. When expanding, especially in underground operation, infrastructure is a major part of it. And for K92, the critical path was the development of a twin incline that would allow those larger tonnages to come out. The mine is an underground mine that’s a bit unusual, in that you go into the side of the mountain, up into the resource in the main part. So there is an existing incline and they are busy now with a twin incline which allows them to get up to 3Mt per annum. Beyond this phase, this development actually allows for the next phase and even potentially the phase after that. 

K92 started this development last year in the middle of Covid and each of the two is now about 600m in. They are aiming to complete the Feasibility Study in the 1st quarter next year and 24-months later, they will be in a position to be commissioning it and ramping production up from just over 100,000oz this year,  to probably around 140,000oz next year, with similar numbers the following year, and then that steps up to 350,000oz. 

Judd Resource

They have started doing some work on a parallel vein system to Kora. Kora has 2 veins K1 and K2 which have produced about 5Moz. Then there's a parallel vein system called Judd which has some good mineralization very close to the surface with 100m below surface intersection of 4m at 278 and 100m metres below that 9m at 8.5 and 1% Copper. K92 has always known this vein system has some potential but hasn't really focused on it because everything has been focused on Kora.

Now more recently, K92 has put in a development along the strike at Judd and developed about 300m. They found the vein J1 which averaged over 3.5m, with about 12g/t Gold equivalent. This is like another Kora vein, parallel and only about 150-200m away with the underground development sitting in between the 2 systems. One of the first holes in the J1 vein got 7.25m with 250g/t per tonne last year, and was one of the best in the world last year. They have followed this up with a 2nd development 30m above the first development and have reported just under 2-weeks ago, the first 83m is averaging 3.5m 16.5g/t. It is showing excellent results so they have turned one of their rigs around which is right in the middle of the two systems to work further on the J1 vein.

They have reported 17 holes with the best hole with 3.7m over 50g/t. There were quite a number of really good holes and in fact on average actually higher than the last quarter results that they reported which is really encouraging. K92 is bringing out a new resource on Kora next quarter and will also bring out a maiden resource on Judd in Q4 this year.

The conversion from inferred into measured and indicated will continue because they have over 400 holes in Kora so they are not taking all the drills off Kora, but they want to give a bit more attention to Judd. They know that from the surface, Judd has the same strike length, if not more than Kora. Kora is 1000m drilled so far, with another 1000m to the sides that they started drilling underground, and they are about to start on the surface. From the drilling they have just reported, Judd was over 600m and about 300m vertically which is quite a significant area that's pushing 200,000 sq. m. The average widths at Judd are well over 3m which gives some idea of the sort of potential.

They have got 1000m × 1000m in Kora with 2 veins, which gives 5Moz. Judd sits next to this system with only 600m × 300m drilled with what they have seen to date every bit as good as either of the Kora veins. There is potential for a 3rd Kora vein that they’ve already shown over 600m × 300m as equivalent to the other two. They plan to take the first stope out of Judd in the next quarter which is easy to do because it's sitting right next to the existing development and infrastructure so they’ll actually be mining it in the next quarter.

It is only in the last few months that K92 has been able to show the real potential at Judd. At the end of October, they will finish on the Kora resource and of the 6 rigs underground, at least 3 of those, probably 4 will be turning around and drilling Judd. The drills that drilled out Kora are sitting there ready with the potential to very rapidly evaluate 1000m of strike length and 1000m vertical. There is 1000m vertical on Kora but every single hole drilled at depth has got mineralization with economic grades and width so they don't even know how deep Kora or Judd goes. 

Timeline for Moving Forward & Next Steps

Over the next 12-months, K92 will be able to drill out a significant portion of the Judd area that is available underground and will keep increasing the area that's available as they are still developing to the south. 

K92 is hoping for a substantial maiden resource for Judd in Q4. There’s certainly potential due to the strike length, and from what they've seen to date, the widths are very similar, the grades appear to be similar to the K1 and K2 veins. 

Significant Resources & Financial Inputs

In 2021 the capital budget for the company was US$60m which includes sustaining and expansion into the twin incline which continues throughout 2022 and at the same time the camp expansion etc will continue too. The next 3 years are expected to be the big capital years when the company is expanding and exploration continues as numbers at Judd and Kora are extremely encouraging for organic growth potential for K92 into the future. 

With that expenditure, production levels that they've been achieving and are looking to achieve over the next 2 years, they actually increase the amount of cash they will have while they are doing all this and pay tax. Last year, K92 was the largest expenditure in exploration in the country and they are on target to be the largest again this year as the numbers on Judd and Kora just beg you to drill.

International Plans, Business Rivals, & Short-Term Goals

K92 is certainly evaluating opportunities outside PNG in terms of M&A, but there's no immediacy as they have such phenomenal growth ahead of them in PNG to focus on. K92 will have a pretty attractive DFS in the 1st quarter next year which makes a couple of fundamental changes. They have never done a Feasibility Study before which means they have no reserves, so next year, in the 1st quarter they will have their first reserves and could potentially make a lot more money. Other companies have been enjoying extremely high Gold prices and a lot of companies have built up very substantial cash reserves. 

We look forward to catching up with K92 again in Q4 once the maiden resource on Judd and the resource extension on Kora have been released.

To find out more, go to the K92 Mining Website