Kainantu Resources (KRL) - Technical Analysis and Due Diligence

Kainantu Resources Limited is an Asia-Pacific-focused gold mining company with three highly prospective gold/copper projects, KRL South, KRL North, and the May River Project. All projects are located in premier mining regions in PNG (Papua, New Guinea). Both KRL North and KRL South show potential to host high-grade epithermal and porphyry mineralization, as seen elsewhere in the high-grade Kainantu Gold District.

The May River project is in close proximity to the world-renowned Frieda River Copper-Gold Project, with historical drilling indicating the potential for significant copper-gold projects. Kainantu Resources has a highly experienced board and management team with a proven track record of working together in the region; and an established in-country partner.

Merlin-Marr Johnson caught up with Graeme Duncan, CEO, Kainantu Resources. Mr. Duncan has over 45 years of experience as a Mining Engineer, initially with operational experience at several coal mines in Australia and later as a consultant. He has extensive experience in reserve calculation, mine design, feasibility studies, bankable documents, independent technical reviews, and project valuations. Graeme is a member of the AusIMM (Australasian Institute of Mining and Metallurgy) and has the relevant qualifications, experience, and independence to satisfy the requirements of “Expert” as defined under the VALMIN Code and as a “Competent Person” under the JORC Code.

Company Overview

Kainantu Resources Limited is an Asia-Pacific-focused gold mining company with two highly prospective gold projects in a premier mining region, the high-grade Kainantu gold district in Papua, New Guinea. The company was founded in 2018 and is headquartered in Vancouver, Canada. It is listed on the Toronto Stock Exchange (TSX-V: KRL).

Kainantu Resources is a TSX-V-listed exploration company. The company’s assets are based in Papua, New Guinea. It has 3 primary assets within the Kainantu region contained within the Frieda River area, that includes Ok Tedi. This region also hosts the Kili Teke resource which was previously owned by Harmony Gold and the May River Project which was owned by two investors. Kainantu Resources was primarily an exploration company, but following the recent acquisitions of Kili Teke and May River, the company is now moving down the development curve. It now has assets with defined resources.

The company’s management is based in Singapore and Australia. The team also spends quite a bit of time in Port Moresby and the assets in PNG. It has an experienced geological team comprising senior expats, local geologists, and PNG-based field teams that are working on the projects full-time.

Ongoing Operations

In the first half of 2022, the company’s primary focus has been on exploring the KRL North and KRL South tenements, primarily for field work, field mapping, and trenching, in order to develop drill targets. It has also undertaken an aerial AMT (Audio Magnetotelluric) geophysical survey over KRL North and two areas in KRL South. The company’s developing both assets in order to define drill targets.

Through the structural work and mineralized mapping, the company now has indications for potential drill targets. The company has reported extensively on these two methodologies. It has also conducted additional fieldwork in the KRL North area along with aerial surveys and conductivity results. These surveys strongly indicate that the features found in K92 should continue in the south, southeast, and southwestern corners of KRL North.

Kainantu Resources is looking to confirm the geophysics data with ground-based evidence through surface mapping, soil sampling, and drainage sampling. The company anticipates that these surveys have not only validated the ideas but have also led to the identification of potential thermal targets, indicating the presence of deeper porphyries that bridge the K92 and KRL areas.

The PNG terrain is highly rugged in nature. The company’s local team has been exploring the jungle and highland areas on foot to carry out surface mapping. The company is also conducting river sediment sampling. Notably, the KRL North area features grasslands, while the KRL South area is mostly a forested region that is located at a 1,500m-2,000m altitude.

Kainantu Resources has scheduled a meeting next week in Singapore to discuss the two new projects, namely May River and Kili Teke. In 2022, the company conducted extensive work on both KRL South and KRL North. It is currently awaiting the assay results. The results are expected to provide an insight into potential drill targets KRL South. Even though the assays are starting to come in, the company would need an additional review process in order to finalise the drill targets. Although the conceptual drill targets are already in place, the company is looking to confirm these through additional fieldwork and geophysics. The geophysics survey has shown promising results so far, demonstrating several levels of intrusive mineralization. The conductive surveys and magnetics show the presence of multiple decent-sized porphyries located underneath.

The May River Project

The May River project was previously owned by two groups that also held significant tenements. One of the tenements was split into two, and currently, the company is in the process of acquiring the tenements from the two parties. As part of the due diligence process, the company sent a team to the historically-explored May River project area. In April-May 2022, the company sent its team for a week-long field program in order to verify the previous results, conduct resampling on some of the trenches, and carry out extensive river mapping and soil sampling in order to confirm the previously identified structures. The field program was highly successful and led to positive observations.

The May River project currently has five main prospects. The Skiraisa area is located in the southern part of the project, and it features historic drill results featuring grades of 54m at 1.83g/t gold and 109m at 1.53g/t gold across 13 drill holes.

Within the May River project, the company also has Foya, Eserebe, and Iku Hill areas. A combination of reprocessed magnetic data, surface mapping, and fieldwork data are already available for these areas. The company has found some anomalous gold, silver, and lead areas contained within a large silver anomaly.

It is highly likely that Mountain Gate would be the company’s first target. The field test work has demonstrated highly-promising copper results with up to 5000ppm (parts per million) copper grades. The company recently resampled the Mountain Gate area and is currently awaiting the assay results. It anticipates that the area may contain several significant porphyries. One of the porphyries is believed to be quite shallow and could possibly feature two epithermal prospects as well.

Within the May River project, the company is also assessing the historically-drilled Skiraisa area. Each region is currently being evaluated in more detail. The company anticipates that the Skiraisa area would be the easiest to develop into a drill target and a resource.

The Frieda River area is an enormous resource that carries pretty decent grades. This area is owned by PanAust, a Guangdong-based Chinese state-owned company. Notably, Kainantu Resources has a strong working relationship with PanAust. The latter has helped the former with logistics and getting the company’s team to the May River project.

According to Kainantu Resources, PNG is a reasonable jurisdiction for mine development. The approval process is highly-transparent. Strong relationships and community relations can make it easier to conduct business operations.

Next week, the company will be holding a meeting in Singapore that will be focused on defining a work program for its holdings. The company currently has several good assets in its portfolio. It is looking to understand, evaluate, and rank each asset based on advantages, disadvantages, and capital requirements. The company has plans to spend capital wisely based on the asset potential. In a case where several assets are developed at once, a capital raise would be needed. The company has already conducted the work for drilling targets at KRL South. It is in discussion with several drilling companies and is evaluating their reputation and equipment availability. It anticipates that drilling targets could be established soon.

The KRL asset offers good access and can be drilled without helicopter support. The team can basically drive up and drill the mapped areas. It is important to note that the company would require helicopter support for two potential drill locations. This area is quite steep, and the company has sourced an excavator which can be used to move the drill rigs around. The company anticipates that the majority of the work can be conducted through excavator-assisted drilling. Based on the location of the final holes, helicopter assistance may be needed.

The May River project does not have road access and as a result, helicopter support would be required. Road development would get the company much closer to the drilling areas, but currently, helicopter support is needed. The project area also offers river access which enables the company to get close to the Mountain Gate Area.

The Kili Teke Prospect

The Kili Teke Prospect was previously owned by Harmony Gold, a highly successful and well-established company. Harmony Gold is known for developing several assets and operations. Kainantu Resources entered into a definitive agreement with Harmony Gold to acquire 100% of the Kili Teke prospect. The former carried out its due diligence, sending a team to the ground in order to evaluate the prospect and analyse the logistics. The asset features old drill pads, however, there are no indications of recent mining activity.

The prospect has an inferred resource featuring 800,000t copper, 1.8Moz gold, and 40,000oz molybdenum. The previous owner has conducted a high standard of work at the asset, which includes a resources report. Kainantu Resources is currently working on converting the existing resource into a NI43-101 compliant report for submission to TSX. A report draft is ready, and based on the conversations with TSX, the company anticipates that the report will be readily accepted.

The existing grades indicate a 0.34% copper and 0.2% gold presence. However, the company believes that there is a different way to develop the prospect. Interestingly, the inferred resource does not include a reasonable amount of very high-grade skarn and skarn breccia because it is present intermittently and is situated around the edge of the porphyry.

The company anticipates that targeted drilling with an initial focus on the open-cut portion of the resource can significantly improve the project’s economics. The company has plans to conduct an optimization study on the prospect. Currently, the prospect has 54 boreholes across 30,000m of drilling. The project already has an Economic Study in place which has been independently reviewed by Worley Parsons and AMC.

The company is looking to develop the mine at a higher grade and a lower capital cost. Based on the initial work, the company believes that the economics can justify the development of a small-scale operation in the initial stages. It is looking to reduce the project risk and the initial capital requirement, which can be achieved by focusing on advancement instead of exploration.

Targets 2022 and Beyond

Kainantu Resources’ management team and directors have extensive experience in operating mines. The company is looking to evaluate the existing assets and take them through the development curve. It understands that additional resources would be needed in order to take the company forward.

The team is currently preparing reports on each of the assets based on the assays and survey results. During next week’s meeting in Singapore, the company will review and rank each asset in order to establish priorities. The company will evaluate the May River project and Kili Teke prospect and rank them against the three main assets.

In order to trigger 100% ownership of the Kili Teke prospect, Kainantu Resources will need to make a $0.5M payment in 2022 and an additional $0.5M payment next year. A $3M trigger will allow the company to conduct a PEA (Preliminary Economic Assessment) on the project, while a $4M trigger will be activated upon the completion of a Feasibility Study.

The company’s philosophy is to maintain a pipeline of projects in order to diversify its holdings. It is looking to publish additional updates on geophysics for KRL South in the near future. The data is currently being evaluated. Interestingly, the May River project has nine additional prospects in the northern area. It features a highly significant tenement area that the company plans to explore in the future.

To find out more, go to the Kainantu Resources website