Karora Resources (KRR) – Fundamentally, Delivering on Every Front

Karora Resources is one of the best mining turnaround stories in recent years. In just over a year, CEO Paul Huet and his team have overseen a remarkable transformation. RNC Minerals, became the strong, consistent and commercially sensible gold producer, Karora Resources.

Oliver Turner talks about the last 12-months for Karora Resources, and the reason that the share price of this gold producer has only been heading north. From the transition away from nickel to gold, to the sale of its 28% stake in Dumont, to the elimination of the Morgan Stanley NSR royalty on HGO operations, to the acquisition of Spargos Reward in Western Australia to add some higher-grade feed into Karora Resources’ mill, there seems to be a rigour and thought to the planning and management of market expectations.

Turner explains the most recent corporate actions including the 1:4.5 share consolidation which was done in the best interests of shareholders and tightens up the registry. Then, getting Maverix Metals’ royalty down to 4.5% from 7.5% on Beta Hunt gold production which was a good outcome, driving millions into the company’s bottom line.

We discuss:

• 1:40– Oliver’s Background & Experience
• 3:01– The Turn-Around of Karora Resources
• 6:43– Selling Dumont; Closed Deal?
• 8:53– Outcome of the Maverix Deal: Expanding Shareholder Registry
• 11:13– The Business Plan & Strategy Going Forward
• 13:37– Higher Grade Discovered @ Beta Hunt: Implications & Plan
• 18:44– Higginsville: Potential & Plans
• 21:22– M&A In Other Parts of the World, A Consideration?
• 22:52– Revised Resource Estimate Expectations
• 25:33– Shaping Karora Resources: Discussions on Corp. Structure
• 27:45– Discussions with US Generalist Funds: Thoughts to List on NYSE?
• 28:56– The Future: End Game & Options
  

Background & Experience

Turner joined Karora about a year ago as Head of Corporate Development for Karora Resources and heading up investor relations.  He was brought to help with the corporate turnaround of the Company, cleaning up the capital structure and bringing in new investors. He comes from the mining and engineering side of things and worked for an investment bank called GMP Securities for 7-years in equity research.

First RNC gold dore bar poured at HGO (Junee 2019) - Karora Resources 2020

Beta Hunt

Karora had the excitement of Beta Hunt which had produced some high-grade coarse Gold nuggets but had no real stable mine plan and also had the second-largest undeveloped Nickel deposit in the world, in Dumont. Ahead of a strong Gold cycle, Karora decided that they wanted to be 100% focused on Gold and executed that corporate strategy with the divestment of Dumont which was announced earlier this year. Eric Sprott is now a big investor, and they’ve been working hard with him to increase his ownership. Sprott is excited about the prospects of Beta Hunt, but also the Spargos Reward. It is comforting for Karora to have Sprott onboard, as it sends the right signals to the institutional shareholders. They expect he will be a long-time holder.

Map of Operations - Karora Resources 2020.

Higginsville

Karora needed to provide a stable operating base, so the acquisition of the Higginsville mine and mill was critical to consistently deliver production every single quarter whilst also improving margins. Karora has significant investment by US and UK generalists who are now coming into the sector and seeing Karora Resources as a viable investment.

Higginsville Mill - HGO mill aerial photo - Karora Resources 2020

Higginsville has been absolutely outstanding declares Turner and Karora now have drills turning at both sites, there are 2 drills on the ground at Beta Hunt and another drill will start in the Autumn. At Higginsville, there are also 2 drills turning and another drill has also been sourced there too.

A large gravity survey has been conducted at Higginsville over 400kms2 and the area that was focused on was the Salt Lake area. Some very large deposits have been found by Goldfields in the Salt Lake area and the Karora deposit is on the Salt Lake itself.  So this gravity survey actually identified some very large anomalies which could be analogous to some of those deposits and Karora is going to do further work and drill test them as there are definitely some very interesting exploration targets that need following up on this year.

On inheriting this property from West Gold who were unable to drill most of the property, Karora has a list of 32 round fields targets at Higginsville. There is no shortage of targets and there are high-grade, underground targets in Aquarius, high-grade open pits in areas such as Baloo and Fairplay North.  There are also larger high grade, potentially lower mining costs projects like the Palaeo Channels called Challengers.

Other investments

Karora has also looked at a lot of different companies with regard to investing in outside of Australia but they’re only going to make investments that will be beneficial for their shareholders. The perfect example of this was the Spargos acquisition which was acquired for AUD$4M, and development work has begun there and a drill will be turning there shortly with the target, of course, of getting some of that ore into the mill by Q2/21 

In terms of diversifying away from country risk, Western Australia is the number 1 jurisdiction ranked by the Fraser Institute last year for mining in the world.

Karora’s expectations

Karora expects things to move positively in the right direction and there are definitely several levers that can be pulled that will be positive for resource and reserve estimates at both assets. We are in a dramatically different metal price environment right now and we are seeing a lot of the industry remaining conservative on resource and reserve prices.  Karora don’t want to add ounces at the cost of grade or margins, so are margin focused.  One of the big accomplishments this year for Karora that will benefit their resources and reserves is the royalties which have dramatically reduced the costs of mining at both assets. Higginsville has some good results coming in and then Beta Hunt also has some recent success.

Corporate structure

The corporate structure of Karora has been under scrutiny and one of the major accomplishments that was voted on by the shareholders was the share consolidation of the 4.5 to 1 rollback that was executed earlier this year. That has been transformative for their liquidity. Karora still has $32M worth of remaining debt and are in discussions for renegotiating that debt and on more favourable terms.

Karora has a tremendous upside of both properties ahead of them and have a 1.4Mt mill that is at a 100% capacity so they need to increase the oz output of that mill. There are several other internal projects which they are looking at right now. 

Karora is considering listing on the New York Stock Exchange and there are certainly arguments for that with respect to increasing trading liquidity, getting more market exposure says Turner and there are even arguments for listing on the Australian Stock Exchange too. Karora has seen over the course of the year that the TSX has been an absolutely incredible and at the moment are happy with how things have performed on the TSX and with the calibre of investors that they’ve attracted to this listing. 

Turner ends by saying that Karora is very excited about what they have ahead of them in terms of what they want to execute this year and he knows that this company ultimately is going to be worth a lot more tomorrow than it will be today but obviously any imbalance that they have, they will evaluate for their shareholders. Turner is himself a shareholder in the company so is aligned with existing shareholders and is excited about the future and to get out there into the market and then deliver on it operationally as they did last year. The company has a lot of energy right now as they’ve built a very stable investible base from the company that a year ago was, borderline un-investible.

A great story of how a team has quietly gone about the business of changing the focus, structure, operating practices, reporting and rearranging of the share registry. There is more to come from this team in 2021.

To find out more, go to the Karora Resources website