K92 Mining Reports Challenging Start to 2023 But Remains Focused on Achieving Full-Year Guidance

• Faced unexpected short-term challenges, but the mine has performed well since mid-April.
• There's a focus on increasing operational flexibility across multiple fronts.
• Processed ore had a head grade of 6.35 grams per ton gold equivalent, an 18% increase from Q1 2022.
• Cash costs stood at $758 per ounce, and all-in sustaining costs were $1,506 per ounce. The quarter saw eight days of unplanned plant maintenance and challenging ground conditions impacting production.
• Revenue for Q1 2023 was $40.4 million, with capital balances of $117.3 million.
• Despite record expenditure for property, plant, and equipment, the company has no debt on the balance sheet.
• Maintained outlook for production to be within guidance range but on the lower half.
• Exploration and expansion plans are in progress, with a positive outlook for the remainder of the year.

K92 Mining held its Q1 2023 earnings call on May 16th, 2023, providing investors with an update on the company's operating and financial performance during the first three months of the year. While the quarter faced some unexpected challenges, management emphasized their continued focus on achieving full-year guidance targets.

Operational Performance Impacted by Processing Plant and Mine Issues

K92 produced 21,488 ounces of gold equivalent in Q1 2023, down from 26,921 ounces in Q1 2022. This decrease was attributed to two short-term issues - 8 days of unplanned plant maintenance and challenging ground conditions at the Kora mine which impacted grade.

117,903 tons were processed with a head grade of 6.35 g/t gold equivalent, compared to 100,124 tons processed at 8.41 g/t gold equivalent head grade in Q1 2022. Mine production was also strong, with a quarterly record 1,257 meters of advance achieved.

According to CEO John Lewins, the issues faced in Q1 have been resolved and the mine has performed well since mid-April. The company maintains its full-year production guidance, albeit now expecting to come in at the lower half of the 270,000 to 290,000 ounce target.

Development and Exploration Progressing Well, Twin Incline Ahead of Schedule

Underground development rates continue to be a major focus for K92, with the company targeting 1,000 meters per month by year-end. New equipment has arrived on site, including additional jumbo drills, to support this accelerated development program.

The twin incline project, which will open up the lower levels of the Kora deposit, is now 80% complete and significantly ahead of schedule. K92 expects to mine the first stope from the twin incline in Q4 2023, unlocking a major new production area earlier than planned.

Exploration drilling is also progressing at multiple targets near the Kora and Judd mines. The company will provide further drill results from these underground programs later in May. Additionally, surface drilling has now commenced at the A1 porphyry target, testing a potentially large copper-gold system.

Financial Performance Reflects Lower Grades and Increased Sustaining Capex

Q1 revenue was $40.4 million, down 23% year-over-year, on sales of 17,602 ounces of gold. The average selling price realized was $1,807/oz compared to $1,769/oz in Q1 2022.

Cash costs rose to $758/oz while all-in sustaining costs were $1,506/oz. This increase relative to the prior year quarter reflects the lower head grades processed and an elevated level of sustaining capital expenditures. Sustaining capex of $11.2 million was spent on capital development and equipment replacements.

Despite these cost increases, K92 continues to benefit from economies of scale as mine and mill throughput expands. The company saw lower unit costs across areas like processing, maintenance and administration during the quarter.

K92 maintained a strong financial position, ending Q1 with $88.6 million in cash and $117.3 million in working capital. No debt remains on the company's balance sheet.

Stage 2A Expansion Reaching Completion, Stage 3 Planning Underway

The Stage 2A expansion is in its final commissioning phase, with the expanded rougher flotation circuit soon to be fully operational. Management believes this could boost gold recovery rates by 1-2 percentage points.

For the larger Stage 3 expansion, tenders are now being awarded for long lead items and K92 expects to select an engineering, procurement and construction contractor by mid-year. An updated capital cost estimate and project schedule will be provided following completion of the tender process.

Safety and ESG Initiatives Progressing

There were no lost time injuries during the quarter, continuing K92's strong safety record. However, the company sadly reported two fatalities in early May resulting from an offsite vehicle accident. K92 extended its condolences to the families and colleagues of the deceased.

On the ESG front, K92's community tax credit program is moving forward after multiple meetings with stakeholders. Project endorsements under this infrastructure-focused initiative are expected in the near term. The company also continues to support education through its scholarship program.

Outlook Focused on Achieving 2023 Guidance Targets

In conclusion, K92 management emphasized that despite the challenges faced in Q1, they remain focused on achieving their full-year guidance of 270,000 to 290,000 ounces of gold equivalent production. With development rates accelerating, new equipment arriving and the twin incline opening up a major new production area ahead of schedule, they see the operation continuing to strengthen through 2023.

Careful management of unexpected issues and a focus on operational flexibility will be key. But with a track record of consistently expanding production over the past 5+ years, K92 expressed confidence in being able to deliver results within guidance by year-end.

K92 Share Performance and Actions to Enhance Value

K92 Mining's share price has declined over 40% in the last year, significantly underperforming relative to gold mining peers and the broader market. The company's average 12-month target price of C$10.75 implies an upside potential of 90% from the current C$5.65 share price (as of May 20th, 2023).

When asked about plans to improve K92's share performance on the Q4 2022 earnings call, CEO John Lewins highlighted several initiatives underway:

• Accelerating exploration with a focus on new discovery potential
• Expanding mining rates and development to grow resources and production profile
• Completing plant expansion projects to increase throughput capacity
• Advancing ESG programs to elevate the company's profile and reputation

Lewins also noted that achieving exploration success and executing on the Stage 3 expansion over the next 1-2 years could be substantial catalysts for re-rating the stock and closing the valuation gap with peers.

Delivering on full-year production guidance and making progress on key growth projects will be important steps for K92 to regain investor confidence after a weak start to 2023. But with mining operations back on track and exploration activities ramping up, the company appears focused on setting itself up for improved performance for the rest of 2023 and beyond.