Karora Resources (KRR) - Setting the Stage to be a Monster in 2022

Karora Resources is a multi-asset mineral resource company focused primarily on the acquisition, exploration, evaluation and development of precious metal properties. It is Karora’s vision to become the next sustainable high quality mid-tier producer.

We recently caught up with Oliver Turner, Executive Vice President, Corporate Development at Karora Resources, a junior precious metals company in Western Australia. There are many things going on at Karora, including an impending growth announcement, which he shared with us.

Company Overview

Karora Resources is a precious metal resource company focused primarily on the acquisition, exploration, evaluation, and development of precious metal properties in Western Australia. Prior to mid-2020, Karora operated under the name Royal Nickel Corporation.

Korora produces some 100,000 oz. of gold per year that feeds into a centralized company-owned mill. They seek to ramp that up to over 205,000 oz. by 2024. Karora intends to become the next high-quality mid-tier gold producer.

The company has two primary gold producing assets, both 100% owned:

1. The Beta Hunt Mine, a robust mineral resource hosted in multiple gold shear zones, with gold found along a 4-km strike length that remains open in multiple directions.

2. Higginsville Gold Operations, which consists of a gold treatment plant, a large historical resource inventory, and a substantial portfolio of gold tenements.

The company has over 146,000,000 shares outstanding.  Institutional investors currently hold about 55% to 60% of the outstanding shares.

Management Team

Paul Huet is the Chairman and CEO at Karora. In addition to Turner, he is teamed with Graeme Sloan, Managing Director; Barry Dahl, CFO; Michael Doolin, Senior Vive resident, Technical Services; Tim Hollaar, Vice President, Finance; and John Leddy, Senior Advisor, Legal. Karora is also assisted in their business activities by a six-member board.

The CEO’s Recent Move

Turner told us that CEO Huet recently moved his family to Australia to be located on seat in the country. It’s a big deal, he said. Huet is an energetic guy and he has already had a big impact at the Perth office. It was reported that that they had to drag him kicking and screaming out of the mines when he first visited them.  Having him there will have a big impact on shareholder value this year and beyond.

There are a lot of moving parts that needed to be pulled together before the upcoming announcement on Karora’s new growth plan. There a seriously big expansion planned at Beta Hunt and Huet is a mining expert. Having him working on site in tandem with Graeme Sloan is going to ensure that Karora executes their plan very well, Turner told us.

Is There a Worker Shortage in Western Australia?

We told Turner that we have been hearing from quite a few Australian companies that there is a bone-fide skilled worker shortage. We asked him to elaborate on that. Indeed, he said, “You’re spot on with those comments”.

He told us that about 40% of the Western Australia mining workforce is non-Australian or from other states in Australia. Because of the pandemic, national borders have been closed and quarantines imposed within the country. Furthermore, the iron ore industry is quite hot in Western Australia, and they have been poaching talented and skilled workers.

Turner told us that they have been quite innovative regarding the worker shortage issue. They are not only competing with remuneration but also by allowing their workers to share in the ownership of the business. He told us that making thier staff proud to work at Karora is very important. The company has been an unbelievable place to work over the past two years and it’s definitely recognized by the workers at the mine face too, he shared. 

Mining at The Forefront of the ESG Revolution

We moved on to talk about ESG, and carbon reduction themes in particular. We asked Turner if they are engaged in these things because the institutions demand it or because they feel it is the right thing to do.

Both, he responded. One can look at these themes through either lens. From the broader perspective, as the 21st century rolls forward, these are major topics that many people care about. Look, he said, mining is going to be the critical driver of all of the materials required by society to tackle climate change and carbon-reduction goals. Why not place the industry that needs to feed the solution at the forefront of it, he asked?

It’s kind of amazing, he said, that last year there was $151Bn flowing into ESG-focused funds and ETFs globally. About $70Bn of that was in North America alone. It’s not trivial. These are the Blackrock’s, Pemberton’s, Invesco’s, and Fidelity’s of the world, he said. ESG is a “must-have” for institutional investment backing, he said.

They don’t want to wait a year from now and catch up with everybody else. Instead, Karora will be ahead of the curve and be an investment of choice, he predicted.

For Karora itself, it a good emphasis as well, Turner said. The fact that they’re launching these kinds of initiatives makes the company more attractive than a lot of thier peers in the industry, he maintained. It does matter for sure, he said.

We asked Turner his opinion on how firms are going to be judged regarding a successful ESG program. That’s a great question he responded. First, he said, a company must make a statement. Then, they must outline a viable, defined, and accountable plan.

They just did that with a company they partnered with called Net-0, Turner continued. They are providing us with a very comprehensive solution. They have aggressive but achievable goals over the next several years, he said. In early 2022, Karora will be releasing its inaugural ESG report, which among other things will document the progress being made on reducing the carbon footprint from their mining activities.

The partnership with Net-0 will help Karora with their E-ratings, measures that are used to determine how well any given company scores on the E component of ESG. There are two agencies, MSCI and Sustainalytics, which rate companies across the spectrum from manufacturers all the way through to gold mining outfits. Karora intends to score well with these agencies. Doing so will help them attract the capital that they need, he summarized.

Karoka’s Recent Success

Great conversation on ESG, we said. Let’s turn to Karora’s recent successes. The company has seven quarters under their belt, going from a period of inconsistent production, to the transformational acquisition of the Higginsville mill, and on to now seven quarters of ounce delivery.

Karora had a good first quarter of 2021, said Tuner. The company produced just under 25,000 oz. of gold.  Analysts were impressed and ScotiaBank has recently launched coverage on Karora, he continued. He couldn’t announce numbers yet, but he assured us that the 2nd quarter was robust as well. Going forward the street will see steady sequential quarter-by-quarter improvement because of several projects coming on-stream in the second half of 2021.

As far as making money, Karora took in $88 M last year. We asked how the first quarter of 2021 turned out cash-wise and Turner told us it was basically flat. That was in large part because they had injected $18 M into the business as planned.

Getting Karora to the Next Level

When we last spoke with Huet, he told us that 2021 will be a year for Karora to get everything in place for growth. We understand that Karora would like to meaningfully exceed 100,000 oz. per year. Can you share with us some of the details, we asked Turner?

They have been doing a lot of engineering work, he said. The growth plan will be announced by the end of the second quarter in 2021, and he couldn’t give numbers at the time of the interview, he said. The growth plan will outline a three-year ranged guidance going forward, he said. It will include:

·   Cost guidance, production guidance, and guidance on capital

·   A big expansion at Beta Hunt. That asset is proving to be much larger than ever anticipated when the company restarted it in mid-2019 

·   A major mill expansion

·   Tremendous exploration success, which will enable them to provide feedstock for further-out years.

One of the key things to remember is that this growth plan requires cash, Turner told us. They are excited to deploy cash into the growth plan and make sure that they have absolutely no funding caps, if humanly possible. They must make sure that they have the capital required to mine gold further down the road, he said. And every dollar will be spent for growth, not for simply sustaining the business, he said.

The company has been drilling at a furious pace, said Turner. There has been a major discovery with “phenomenal grades” at the Larkin Zone at Beta Hunt, which is not yet fully delineated. It may extend a full kilometer or more.  Larkin Zone may be minable by nearly next year, he told us.

The company is experiencing a lag in getting assays done, especially from exploration samples, largely due to the labor shortage and the fact that budgets are up and many companies are drilling. All these people want their assays back right now, he said. He also mused that it’s a good time to be in the lab assay business.

Karora is not going to be only producing 100,000 oz. per year much longer, Turner said. The company is shifting from being a junior miner to a mid-tier gold producing company, he stressed.

Tell Us About Your Other Assets

You have a few other assets, we said. Talk to us about them. Is anyone attributing value to Two Boys, Spargos, Lake Cowan, or Aquarius?

Turner responded that they expect Spargos to start to deliver in the 3rd quarter 2021, and expects both Two Boys and Aquarius to come on soon as well. He also mentioned Mount Henry as another potential profit maker.

Lake Cowan is an interesting situation, Turner told us. They completed a scout drilling program last year. They were looking for anything that was over 0.02g/t. Some holes came in much better. One penetrated 50 m of 1.35g/t. They are awaiting assay results and will design the next, more focused drilling program soon, he said. They are looking for “very, very large deposits” at Lake Cowan, he told us.

Let’s Talk About Nickel

Next we moved on to nickel. We notice that you are getting some fairly high-grade nickel coming out of the ground at Beta Hunt. Tell us about that.

Indeed, they pleased with the richness of the nickel they are getting, Turner admitted. They sell the nickel to BHP right next door and have no processing costs associated with that.  Furthermore, they have penetrated some super high nickel grades, up to 8% Ni, at the Larkin location, in addition to all the gold that is showing up.  Even better, they recently announced an incredible intercept with 11% to 18% Ni, at their 50C/Gamma Zone. They have several geologists solely focused on nickel now, he told us.

The evolving nickel story is not going to be in their upcoming major growth announcement, he told us. But be sure, by the end of this year, they’ll have a better picture of what they can do. They will probably improve on what’s going to be an impressive growth plan already. First and foremost, they are a gold company first, he said. But if they have some very nice upside from nickel, no one at Karora will be complaining.

The Western Australian Experience

Karora is extremely happy to be based in Western Australia, Turner told us.  Western Australia is an unbelievably pro-mining state in an unbelievably pro-mining country. The state receives a 2.5% royalty from mining activities and that has resulted in a budget surplus, at a time when all other businesses were squashed. He closed out the conversation with this: Karora is focused on giving investors a pure-play gold vehicle in what he considers to be the best place to mine gold in the world, he said.

To find out more, go to the Karora Resources website