K92 Mining Reports Strong Q2 Results and Progress on Expansion Projects

• The conference call discussed K92 Mining's financial performance for the second quarter of 2023.
• The company reported a strong operating performance with a 43% increase in gold equivalent production from the first quarter.
• Cash costs and all-in sustaining costs f(AISC) or the quarter were significantly lower than the annual guidance range.
• The cash balance increased notably even after near-record capital and exploration spending.
• Major achievements included the completion of the stage 2A plant expansion, the discovery of a high-grade zone at the J2 vein, and the approval of the stage three expansion process plant.
• The 2022 sustainability report highlighted the company's commitment to responsible mining. Approximately 94% of K92’s workforce is from Papua New Guinea, with significant emphasis on local hiring and training.
• The company aims to reduce greenhouse gas emissions by 25% by 2030.
• During Q2 2023, revenue increased by 39% from the prior year, reaching $51.8 million.
• There was a tragic incident resulting in 2 fatalities during the quarter.
• K92 was recognized by ISS for peer-leading corporate governance and is the second-largest corporate taxpayer in Papua New Guinea's mining industry.

K92 Mining held its second quarter 2023 financial results conference call on August 12, 2023. CEO John Lewins and CFO Justin Blanchet provided an overview of the company's operating and financial performance for the quarter, as well as an update on expansion projects underway at the Kainantu gold mine in Papua New Guinea.

Key Takeaways for Investors

• K92 reported strong Q2 production of 30,794 oz gold equivalent, up 43% from Q1 2023. This was driven by higher mill throughput and grades as Stage 2A expansion nears completion.
• All-in sustaining costs for Q2 were $975/oz, well below the company's guidance range of $1,180-1,300/oz. This demonstrates K92's ability to scale production while controlling costs.
• The company ended Q2 with a very healthy cash balance of $95.6 million, even after spending $22 million on capital projects during the quarter.
• Excellent progress was made on the Stage 3 expansion, de-risking the project and containing capital costs. The process plant EPC contract was awarded for $81 million fixed lump sum.
• K92 announced a target to reduce GHG emissions by 25% by 2030, demonstrating commitment to sustainable mining practices.

Strong Q2 Operating Performance

• In Q2, K92 produced 30,794 oz gold equivalent from 112,471 tonnes processed at a head grade of 9.2 g/t. This was up 18% from Q2 2022 production.
• Gold recovery rates have increased significantly, now reaching design parameters of 93% following Stage 2A commissioning. Ongoing optimization work aims to push recoveries higher.
• Mining and development rates are nearing record levels, despite some impact from safety incidents during the quarter. Additional equipment has been added to boost development meters.
• Cash costs for Q2 were $597/oz, and all-in sustaining costs (AISC) were $975/oz, well below yearly guidance ranges. This demonstrates K92's ability to control costs during its production ramp-up.

Strong Progress on Stage 3 Expansion

• The Stage 2A plant expansion was completed in May, doubling the rougher flotation capacity to 500,000 tpa.
• In July, K92 awarded the $81 million EPC contract for the Stage 3 expansion process plant on a fixed lump sum basis. This significantly de-risks the project and locks in 94% of capital costs.
• Key long-lead items for the Stage 3 plant have already been ordered, keeping the project timeline on track. Commissioning is slated for Q1 2025.
• Other infrastructure for Stage 3, like underground development, accommodation, and surface facilities, is rapidly advancing.
• The twin incline is now over 80% complete, providing additional drilling platforms and future high-volume ore flow.

Positive Exploration Results

• Exploration drilling at Kora and Judd has significantly expanded known mineralization, with high-grade results from newly discovered zones.
• A new high-grade zone called J2 was discovered south of Judd, highlighting the potential for additions to the resource base.
• Drilling is now focused on expanding Kora Deeps and Judd Deep as the deposits are traced down-plunge from underground drill platforms.
• Surface and underground drilling will support an updated resource estimate in October 2023 for Kora and Judd.
• First rigs are slated to start drilling A1 and Arakompa, two high-potential regional targets close to existing infrastructure.

Financial Summary

• In Q2, K92 generated revenue of $51.8 million on sales of 28,141 oz of gold and 1.7 million lbs of copper. This was up 39% from Q2 2022.
• Operating cash flow before working capital was $16.2 million for the quarter compared to $10.5 million in Q2 2022.
• The company reported net income of $4.3 million or $0.02 per share. This was lower than Q2 2022 due to non-cash items and adjustments related to sales.
• Cash costs per oz were $597 and all-in sustaining costs were $975/oz, compared to $617/oz and $893/oz respectively in Q2 2022.
• K92 ended the quarter with a cash balance of $95.6 million after capital expenditures of $22 million. The company has no debt.
• Capital expenditures are expected to increase through 2022 as development rates ramp up and work on Stage 3 expansion continues.

GHG Emissions Reduction Target

• K92 announced a target to reduce GHG emissions 25% by 2030 from a projected business-as-usual level.
• As a hydro-powered underground mine, K92's emissions footprint is already low compared to the industry average.
• Initial efforts will focus on increasing the reliability and supply of hydropower to the site to reduce diesel usage.
• K92's renewable power sources and lack of open pit operations position it well to meet emissions targets through operational optimization.

Tragic Safety Incidents and Company Response

• K92 suffered multiple fatalities in two separate incidents during Q2 2023. The company expressed its deepest condolences to the families.
• K92 stated its commitment to reinforcing its safety culture and providing more disclosure around these incidents in its 2023 sustainability report.
• The incidents appear to have had some impact on development rates and production volumes in the quarter.
• Going forward, K92 plans to increase its focus on improving safety performance and preventing repeat occurrences. Investors will look for more transparency around safety metrics.

K92 Share Price Performance

K92 Mining's share price has significantly underperformed both its gold mining peer group and the gold price over the past year. K92 shares have fallen 49% over the past 12 months, versus a 13% drop in the VanEck Gold Miners ETF (GDX) and a 6% rise in gold prices.

Some factors contributing to K92's lagging share price performance include:

• Weaker gold and copper prices weighing on financial results
• Delays ramping up production through 2022
• Higher-than-expected capital and operating costs
• Concerns around the ability to finance Stage 3 expansion
• Impact of tragic safety incidents on operations and culture

However, the company's strong Q2 operating results and progress on Stage 3 suggest it is starting to overcome these headwinds. K92's significant production growth pipeline, low costs, and exploration potential provide a compelling investment case at current valuations.

The company has not provided specific guidance on how it intends to improve share price performance. However, the successful execution of its expansion plans to boost production to 360,000 oz gold equivalent per year by 2027 could significantly re-rate K92's stock as risks are reduced. Continued exploration success and resource growth will also demonstrate the large-scale potential of Kara and Judd. Maintaining low costs will allow K92 to thrive even in lower gold price environments.

• K92 reported an excellent Q2 with lower costs, higher production and major progress on Stage 3 expansion.
• Discounted valuations provide an attractive entry point for investors seeking leveraged exposure to high-growth, low-cost gold producers.
• Near-term share price catalysts include the updated resource estimate in October and further de-risking of Stage 3 expansion plans.