K92 Mining (KNT) - Targeting 1.7Mtpa Gold Production

K92 Mining Inc. is a mineral exploration and development company that owns and operates the Kainantu Gold Mine located in the Eastern Highlands province of Papua, New Guinea. The Kainantu Gold Mine is a high-grade, low-cost underground mine within an 860 square kilometre land package in a region known for Tier 1 deposits.

Matt Gordon caught up with John Lewins, CEO and Director, K92 Mining. Mr. Lewins is a Mineral Engineer with over 35 years of experience in the mining industry. He has worked in Africa, Australia, Asia, North America, and the former Soviet Union. He previously served as the Chief Operating Officer for K92 mining from May 2016 to August 2017. Mr. Lewins has successfully managed the development of a number of open pits and underground gold, precious, and base metal mines from Feasibility Study through to profitable operations.

He has operated extensively at the corporate level in various roles from Executive General Manager to Director and CEO with a number of other mining companies including MIM Holdings, First Dynasty Mines, Platinum Australia, and African Thunder Platinum. He received his National Diploma for Technicians (Extractive Metallurgy) from Technikon Witwatersrand, South Africa, a Bachelor of Science degree (Honours) in Mineral Engineering from the University of Leeds, England, and a Graduate Diploma in Management from the University of Queensland.

Company Overview

K92 Mining is a mineral exploration and development company. It was founded in 2010 and is headquartered in Vancouver, British Columbia. The company is listed on the Toronto Stock Exchange (TSX: KNT) and the OTC Markets (OTCQX: KNTNF). In 2021, K92 mining was recognized among the best 50 companies on the OTCQX. Its flagship asset is the Kainantu Gold Mine, located in the Eastern Highlands province of Papua, New Guinea, which was acquired from Barrick Gold in 2014.

Production Metrics

K92 Mining operates the high-grade Kainantu Mine in Papua, New Guinea. The mine is currently going through an underground expansion from 400,000t per annum to 500,000t per annum. The company is looking to increase production from 115,000oz to 140,000oz in 2022. It is working on the Feasibility Study for the next stage in expansion, which is expected to increase the annual production to 300,000t.

The company has now completely lifted all covid restrictions and this change has started to reflect its production numbers. The current production capacity is 100,000t, while the planned throughput is slightly under 109,000t. The expanded capacity was commissioned late last year. The company has already exceeded its capacity and is working on the next phase of expansion, which is expected to produce around 125,000t per quarter or 500,000t per year. Covid is almost non-existent in Papua, New Guinea, a development that enabled the company to lift the restrictions. Currently, the production is 9% higher at 109,000t versus a 100,000t stage 2 capacity.

On the mining side, the company has over 114,000t mined which is 14% higher than planned. The company is already working towards the next stage of expansion, which would take production from 400,000t to 500,000t.  While the company has yet to install the additional equipment required for the expansion, it is already achieving higher numbers in stage 2. Notably, this is the company’s best quarter from a production perspective.

Cash Position

In July 2022, K92 Mining closed a bought deal public offering for aggregate gross proceeds of CAD$50M, pursuant to which the company issued 5,405,500 common shares at a price of CAD$9.25 per share. The company intends to use the net proceeds of the offering for continued exploration near the Kainantu mine and regionally, continued expansion of the Kainantu mine for operating and administrative expenses and working capital purposes.

The capital raise was carried out at a 2% dilution to the company’s shareholders. The company raised funds at the top of the market in order to carry out the next phase of expansion. In this phase, the company is planning to triple the throughput to 1.2Mt per annum and increase production to over 300,000oz per annum.

The company is self-funding the $15M exploration program. Currently, it is the largest explorer in Papua, New Guinea. The company was cognizant that CapEx (Capital Expenditure) and OpEx (Operational Expenditure) will increase due to inflation, and as a result, it acquired additional funds in order to reinforce the balance sheet.

K92 Mining has $120M in cash flow with zero debt, as it enters the next phase of expansion. It is looking to maintain the exploration efforts. Currently, it is the biggest explorer in the country with 10 drill rigs deployed. The exploration efforts have delivered promising results so far.

The capital raise instils confidence for both the company and its shareholders. It ensures that the company can maintain its exploration expenditure while working on a major expansion that will be funded through the balance sheet and cash flow. This capital raise has effectively increased the company’s cash balances by 50%, bringing the overall cash reserves to $120M.

The company has commissioned the gravity circuit. At the end of the previous quarter, the company exported the first batch of doré bars. Notably, it is currently getting only 5%-10% of its gold via doré bars. It anticipates that with the new plant, it will be able to attain 15%-20% gold from doré bars. The bars offer 4% better pay-ability. While the company can attain really good payment terms with float con, the terms are even better with doré. According to the company, doré recovery is similar to gravity gold recovery. It has the potential to increase the overall recoveries by 0.5%-1%. The float con also enables the recovery of higher grade copper, which directly impacts the pay-ability. This way, the company is benefitting on multiple fronts.

Jurisdiction Risk

From a jurisdictional risk perspective, the company is in a strong position. It recognizes the existing risks and is cognizant of the fact that each jurisdiction in the world comes with its own set of perks and challenges. The challenges in Papua, New Guinea are in relation to the local communities and landowners. It continues to work on delivering infrastructure such as roads along with health and education spending. Over the last 2 years, the company has spent over $1M on road and community development.

It is important to note that Papua, New Guinea has a copper tax. The company’s CEO recently met with the country’s tax commissioner. In 2021, K92 Mining was the country’s second-largest taxpayer in the mining space. Tax payments are made each quarter. This year, the company has already paid about 50M Kina in tax, which is equivalent to $15M. In addition to the copper taxes, the company has also paid other taxes while generating significant free cash flow. Following a meeting with Papua, New Guinea’s Prime Minister, K92 Mining was flagged as a good corporate citizen.

ESG Considerations

In recent times, business and mining companies have come under the microscope. Communities and societies have questioned the value added by these businesses. Companies need to demonstrate that they are adding value through transparency. The company feels that it hasn’t always been good at communicating the elements of mining to society.

Though there are negative impacts that stem from mining, the company has been working on mitigating these effects and improving them on a daily basis. Copper mining adds value to the country. The company is also looking to mitigate the environmental impact its operation has on the local population. In addition to the operational and recovery-based improvements, the company also seeks to have a positive impact on the environmental performance, social performance, and its contribution to the community. The importance of these measures varies widely between different jurisdictions.

Each jurisdiction has its own unique set of challenges. This makes it important to focus on specific areas of improvement. While tier-1 jurisdictions are often considered investments with the lowest risks, they often have their own set of challenges. In fact, getting mines up and running is getting harder in higher-ranked jurisdictions despite the demand growth for metals. While the current times are challenging for the mining industry, it also brings opportunity for a society that is looking to transition toward carbon-conscious or carbon-neutral operations.

In order to improve the ESG (Environmental, Social, and Governance) compliance, the company is mindful of material shipping. The company is sending the concentrate to Boliden in France, a low-carbon copper producer. K92 Mining is proud to be associated with Boliden as it helps in reducing its carbon footprint.

Boliden’s operations are powered by hydroelectricity. The underground operation has a low environmental impact. The company is looking to further reduce carbon emissions by moving towards electric equipment in the future.

K92 Mining started reporting ESG metrics 2 years ago. The reporting is being expanded each year. The company has also invested in 1-2 ESG funds. When it comes to ESG-conscious operations, K92 Mining is leading the pack. The company is working towards further reducing its carbon footprint. According to the company, buying carbon credits plays a significantly small part in reducing carbon offsets. The funding originating from places including the US, Canada, and Australia is usually more ESG-compliant than other jurisdictions.

Companies can often pay a fee to attain carbon credits, but in most cases, it has very little impact on the actual carbon footprint. The industry is now getting serious about reducing carbon emissions. It is important to measure the reduction in carbon in order to demonstrate the difference it can make.

Targets 2022 and Beyond

By the end of 2022, K92 Mining is looking to commission a 500,000t per annum plant, which is a 25% increase in the throughput. The next phase of expansion will take the company’s processing capacity to 1.2Mt per annum, effectively tripling its current throughput. An increase in throughput will enable the company to bring the lower-cut-off grades into the plant, which, in turn, would lead to lower overall costs on a per ton basis. The company is looking to develop a single operation with a 300,000t annual capacity. This would be the lowest quartile production in terms of cash and AISC (All-in Sustaining Costs). The company seeks to drill the long-time asset on multiple fronts in order to expand the resource. While the mine life is currently undetermined, it is expected to continue operating for decades to come.

K92 Mining is looking to commission a 1.2Mt per annum plant by mid-2024. Over the next 2 years, the company is looking to spend about $300M in CapEx. Following the increase in capacity, the company is looking at a potential DFS (Definitive Feasibility Study) along with a PEA (Preliminary Economic Assessment) to further step up production from 1.2Mt to 1.7Mt per annum. This can be achieved by restarting the existing plant.

The planned 1.2Mt expansion will be achieved through a brand-new plant, while the older plant will be put on care and maintenance. The older plant can be brought back into production fairly quickly. Once the company reaches the 1.2Mt capacity over the next 2 years. It will work towards a step up and achieve the 1.7Mt target capacity. Since it is looking to restart the old plant, the company would not need to invest large amounts of capital. The company can efficiently grow the annual trucking capacity to 3Mt by installing conveyors. This would be stage 3a of the operation. The infrastructure currently being developed is being built with stage 3a, stage 4, and potentially stage 5 expansion in mind. The company is building to expand.

At the current gold price, the company’s post-AISC margin is about $1,000/oz. It isn’t looking to spend the margins on expanding the capacity. The company is currently involved in internal discussions on the Board level for potential dividend policies.

While the expansion and exploration are underway, the company is also working on a dividend policy. At the same time, the company is looking for additional opportunities. It anticipates that the current market landscape could provide several opportunities. Since the company has robust organic growth, other opportunities can help achieve growth.

Exploring other opportunities will help the company maximise shareholder value. These opportunities can stem from small things such as gravity circuits along with incremental improvements in recovery, gold pay-ability, and copper pay-ability. The next phase of expansion presents even more opportunities to attain growth and maximise value. These aspects add value to the company, which in turn, benefits the shareholders.

This year, K92 Mining is looking to spend $15M on exploration. It currently has 6 drill rigs deployed, with each rig expected to drill about 600m each month. All 6 rigs are working underground, out of which 4-5 rigs are focused on resource expansion, while the remaining drill rig will convert the inferred resource to M&I (Measured and Indicated). Later in the year, the company is looking to expand its resource to the south of its mining lease. It is also looking for resource expansion at depth through a twin incline. Once the twin incline is in place, the company will start drilling underground and push the resource deeper.

On the surface, the company is currently drilling with 4 rigs in Kora South, which is located in the south of the mining lease. The underground rigs are drilling into the Judd vein system, which runs parallel to Kora. So far, the company has covered about 20% of the area which would be equivalent to Kora. It is looking to carry out a lot more drilling at the Judd system.

In the near future, K92 Mining is looking to publish a report on the Blue Lake porphyry target. A comprehensive report is expected this quarter. The company is also drilling 2 additional porphyry targets which are part of the larger system. In addition, the company is looking to follow up on last year’s detailed aerial geophysics program through extensive surface work. This will generate multiple targets which will enable the company to continue operations for over 10 years.

To find out more, go to the K92 Mining website