Karora Resources (KRR) - End of Year Update & Investor Meetings, London

Karora Resources Inc. (formerly known as Royal Nickel Corporation or RNC Minerals) is a multi-asset mineral resource company focused primarily on the acquisition, exploration, evaluation, and development of precious metal properties. The company's vision is to become the next sustainable high-quality, mid-tier producer. 

Matt Gordon caught up with Oliver Turner, Executive Vice President, Corporate Development, Karora Resources. Oliver has over 10 years of experience in the mining industry. He previously served as the Senior Vice President of Precious Metals Equity Research at GMP Securities for 7 years. He also worked as a Mining Engineer for Wardrop Engineering. His educational credentials include a Bachelor of Science degree in Mining Engineering from Queen's University. He is also a CFA charter holder. 

Company Overview

Karora Resources was founded in 2006 and is headquartered in Toronto, Canada. The company is listed on the Toronto Stock Exchange (TSX-V: KRR) and the OTC markets (OTCQX: KRRGF). Salt Lake Mining Pty Ltd., Hill 51 Pty Ltd., VMS Ventures Inc., Magneto Investments Limited are the company's subsidiaries. The company's major assets include the wholly-owned Beta Hunt Mine and Higginsville Mine in Western Australia. 

Growth Strategy

Karora Resources is currently producing up to 100,000oz gold on a yearly basis. It has a fully-financed growth plan to expand the production profile to 200,000oz by 2024. 

The company acquired Higginsville in 2019 along with a mill. Back then the company faced financial uncertainties. The company laid the foundation for becoming self-supporting through cash flow generation. This was achieved by renegotiating the company's 2 major royalties, enabling the company to unlock the exploration and production potential of its Higginsville and Beta Hunt mines.

The company's AISC (All-in Sustaining Costs) previously stood at $1,350. Over time, the company has been successful in bringing down the AISC below $1,000. 

During the acquisition of Higginsville, the company had a significantly slim balance sheet. The takeover was made possible through debt financing for acquiring both the mine and the mill. To ensure uninterrupted mill operations, the company carried out a critical capital raise in 2019. This decision enabled the company to reach its current cash position. 

Cash Position

Karora Resources currently has $90M in cash flow. Despite the deployment of $60M in earthwork and pre-production for over a year, the company is still generating significant free cash flow. Its share price appreciated from $3.07 to $4.87 in the past few months. 

The company plans to allocate the $90M for its growth plan over the course of the next 2.5 years. This growth plan includes mill expansion, the underground expansion for the Beta Hunt mine along with the purchase of new equipment to carry out these operations. The company built up its cash reserves using a strategic and calculative approach over the past 2 years.

Karora Resources has strong guidance numbers on both production and cost. The company is looking to further improve these metrics over time. In 2022, the company is looking to double its production as highlighted in its 2-year growth plan. 

Fund Allocation

Karora Resources plans to invest between $20M-$25M towards exploration and resource definition on a yearly basis. The company's exploration budget is the largest for the land package in the past 15 years. 

The company is working towards building a larger deposit to scale up operations. The company is currently a junior producer looking to become a mid-tier producer. To achieve this growth, the company is building up its resource inventory through extensive drilling, increasing the resource annually after depletion. To transition into the mid-tier domain, the company is looking to generate large-scale and long-term value through its assets. 

Targets 2021 and Beyond 

Karora Resources expects to grow its output to 200,000oz by 2024 along with a 2.5Mt supply through its expanded mill. To get around the mill's capacity constraints, the company will prioritize the high-grade material for processing. 

The company is targeting the Sleuth trend area located between the Baloo open-pit mine, Monsoon and Nanook prospect along with the Lake Cowan deposit. Additionally, the company is also looking for ways to expand the mill capacity to keep up with the increase in supply. To achieve this, the company is considering either building a new mill or a potential mill acquisition. 

Climate Action Plan 

Following the company's zero-carbon initiative, Karora Resources has received increased interest from the market. It currently has a 55%-60% institutional shareholder base. 

The inclination towards a greener world was evident in the recent COP26 (Glasgow Climate Change Conference 2021). During this conference, $57Tr of the $100Tr active fund managers signed the climate action initiative. It is important to note that over half of the world's actively managed funds are now working towards reducing carbon emissions. This fund was $9Tr in December 2020. 

Karora Resources partnered with the Net Zero Company to achieve its carbon-neutral goals. The goal was to reach carbon neutrality in 2021, which the company achieved back in September. Following this, the company plans to develop a long-term road map to reduce emissions, reaching a net-zero carbon footprint. 

The company has also funded multiple afforestation projects in Australia to counteract the effects of the bush fires. These initiatives have led to increasing interest from large institutional investors. Karora Resources is among the first carbon-neutral gold producers in the world. 

The Nickel Business

The Beta Hunt mine was historically a nickel operation for over 30 years before becoming a gold operation. Karora Resources's current resource stands at 15,000t nickel at 2.7-2.8%. 

Following the discovery of the 30C zone, the company ramped up its nickel exploration efforts over the past 12 months. This deposit is located above the Larkin zone and it features up to 7% nickel. The company is looking at this deposit as a by-product credit. 

Karora Resources also made a landmark discovery at the 50C zone, located near the old Beta Sleuth mine, a major contributor to the historic nickel operations. The company has drilled an 80m wide area with a 150m strike length. The company anticipates that the strike length could extend up to 2.6km, similar to the neighboring trough. This zone features a higher grade than the existing nickel remnant area. These nickel reserves will serve as a promising resource from both a price and a critical metal supply perspective. 

Assay Delays

Karora Resources is currently facing delays in its drilling and exploration due to the assay result turnaround times. The current wait times are up to 2 months, causing significant slowdowns in drilling and causing logistical challenges. The company currently has 8 drill rigs employed. 

To remedy the delays caused by assay results, the company created an on-site assay lab for grade control drilling. Additionally, the sample prep was also moved in-house to further expedite a part of the work that was originally carried out in Kalgoorlie. Due to verification reasons, the whole exploration sampling cannot be carried out in-house. However, these measures will help improve the assay result times by a significant margin.  The company is looking to publish the updated drill results for both nickel and gold at the earliest. 

The nickel operations will provide significant cost reductions in the company's operations. The company is looking to publish the 2020-21 resource update by February 2022. This resource will comprise the 30C nickel area, however, the 50C area is excluded due to lack of sufficient drilling. A 50C resource update is planned for Q3 2022. 

In 2020, Karora Resource generated nickel by-product credits at $30/oz at 2.7%-2.8% from its remnant nickel mining. The company anticipates that the pricing will be higher in the coming years. The nickel credits are not included in the company's current 3-year guidance. Updated guidance for 2022 is expected by February next year.

To find out more, go to the Karora Resources Website