Karora Resources (KRR) - The Order of Play

Karora Resources (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 spoke with Paul Huet, Chairman, and CEO of Karora Resources. Paul previously served as the President, CEO, and Director at Klondex Mines. Paul also serves as a Director at 1911 Gold. He has extensive experience in the capital markets, along with engineering and operations in mining. His educational credentials include a Mining Engineering Technology program at Haileybury School of Miners, Ontario, where he graduated with Honors. He also completed the Stanford Executive program at the Stanford School of business. He is currently a member of OACETT as an applied Science Technologist and an Accredited Director. 

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 Mining in Western Australia. 

Operational Challenges

In 2019, Karora Resources was going through a financial crunch where the balance sheet was suffering and the company struggled to pay their vendors. It had a significant presence in Canada through its Dumont asset, however, it was yet to establish a presence in Australia as a Canadian company. Over the past 2 years, the company has established credibility and demonstrated its commitment. The relocation of the company's CEO further strengthens its confidence in the Australian assets. 

This year, the company faced operational challenges due to the ongoing rains as it was the wettest July in Australia's history. However, the company's team led by Graeme Sloan and strong General Managers managed to overcome these issues and continued with the movement of rocks into the mill. 

Covid Implications and Measures

Karora Resources brought a doctor on-site to vaccinate its employees. Since a staff member was flying into the country, mandatory quarantine was done which led to a 4-day pause of mill operations. The company utilized this time to carry out planned maintenance. Q2 2021 was the strongest quarter in the company's history.  Although the pandemic has led to a shortage of workforce across the industry, Karora Resources has taken strong measures to retain its talent pool. 

Given the travel restrictions and supply shortages, there has been a rise in commodity prices. This includes the rising cost of labor that required increasing workers' compensation to stay competitive in the market. 

The prices of rock bolts, explosives, and diesel have also increased which had a negative impact on the overall operating cost. Despite these challenges, Karora Resource was successful in delivering the expected guidance with the company's all-in sustaining costs hovering under $1000oz in the previous quarter. 

Net Zero Carbon Emissions

Karora Resources is focused on ensuring an environmentally conscious operation. The company has officially met net-zero carbon emissions from its mining operations in 2021. To curb the impact of Australian bushfires, the company also carried out reforestation. Presently, it has been successful in counteracting the 80,000t emissions produced through mining operations. The company plans to reach a net-zero carbon emission goal for its renewable energy, electric vehicles, and other projects in the long term. 

Financial Capabilities

In Q2 2021, Karora Resources announced $0.10 per share in adjusted earnings. The company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) stood at $0.20 along with an all-in sustaining cost of $996/oz. The company's cash flow continues to grow and it plans to double its existing production numbers from 99,000oz to 180,000oz-200,000oz. 

The company's operations are now self-funded and all its capital expenditure is accretive. In 2019, the company raised $18M through warrants that, during the time of this interview were due to expire within the next 24 hours. 

Karora Resources currently has $80M in cash flow and is delivering consistently on its claims. It is looking to refinance the existing debt and has received interest from multiple parties. The company plans to double its production numbers, leading to a significant jump in revenue. This cash flow will be utilized towards growing their resource output by carrying out extensive drilling operations. 

Karora Resources has delivered a consistent 25,000oz supply 7 quarters in a row. In Q2 2021, It managed to deliver 30,000oz, a 20% jump. Last year, the company renegotiated its royalties, leading to savings of $100 on every ounce produced. 

Additionally, the company worked hard to bring down its G&A (General and Administrative expenses). Previously, it had a workforce of 20 employees in Toronto, which has now evolved to a team of 3. This led to a massive drop in its G&A which previously stood at $3M/annum. 

The company is focusing on growth as a way to prevent the dilution of shareholders. Its outstanding debt stands at 10%, however, the weighted average costs are much lower than 2019 since the company has grown considerably within the past 2 years. 

The Beta Hunt Mine

In Q2 2021, Karora Resources generated a quarterly supply of 22,000oz from their Beta Hunt Mine. The Beta Hunt Mine's existing ramp had a monthly output of 37,000t. For the past 4 months, the company has been working towards increasing the output to 40,000t, which seemed challenging back then. However, the company was successful in generating an 80,000t/month output from this ramp.

The Beta Hunt deposit features a strong system of gold and nickel reserves. The company's target to double the supply output requires the development of a second ramp which has an estimated cost of $50M-$60M. 

The company is working towards the development of a processing facility along with expanding the plant size to output 160,000t/month. It is important to note that currently, 70% of the company's ounces come from the Beta Hunt Mine. Karora Resources has been carrying out drilling operations through 4-6 rigs in 2021 so far. It plans to add an additional 4-6 rigs, bringing the total count to 10-11. 

The Beta Hunt Mine is the company's flagship project which is generating the majority of their cash flow. The company was able to generate an additional $45/oz savings on nickel. It plans to explore the nickel reserves in the 50C zone and grow the resource. This site has had 3 months' worth of stopes drilled, leading to 18 months of waste development. These broken rocks have the potential to be mined for the short term. 

Karora Resources is looking to demonstrate the economic viability of the Beta Hunt Mine apart from the coarse gold supply. The company is focusing on Dore gold bars as the major source of revenue generation. The coarse gold supply can be sold at a premium based on market interest. 

The Larkin Zone

Karora Resources was able to extend the strike length within one year of initial discovery. Since there was existing infrastructure at the site, the company was able to carry out optimal drilling without the need for extensive underground development. 

The new underground zone features 4m of 8.2g gold and in February 2021, the company uncovered 9m of 19g. The company was able to reduce the project's royalty as the drilling operations began. In May 2021, it identified a strike length of 650m with 5.8m of 7.6g.  

In September, Karora Resources announced the extension of the Beta Hunt mine to a new 1,000m strike length in the Larkin Zone. This zone also featured nickel above the underground deposits named the 30C nickel zone. Based on the discoveries made so far, the company is looking to include the Larkin Zone in its next resource update.

Higginsville Gold Operations (HGO)

The HGO site was acquired by Karora Resources at a very low cost per ounce. It has a 1.9Moz measured, indicated, and inferred resource. 

The Spargos Reward Gold Project

Karora Resources acquired the Spargos Reward Gold Project from Corona Resources Limited in 2020. This deposit has a resourced estimate of 111,000oz (785,800t at 4.4g/t) indicated and 19,000oz (151,000t at 4g/t) inferred. This deal was closed at a cash price of $4M. 

The Spargos Reward Gold Project is a 33 square km area located 35 minutes by road to HGO. The company removed the royalty from the project prior to entering production, leading to further cost optimizations. 

Lake Cowan

The Lake Cowan resource is situated within the Higginsville Great project area focused primarily on the Sleuth Trend between the Baloo open-pit mine and the Nanook prospect. Karora Resources spent $15M on drilling operations at Lake Cowan in 2020 and announced a new discovery in 2021. The initial hole featured 1.4g at 50m within the 20km strike length of the Sleuth Trend. This area is surrounded by high-grade material. 

The Baloo Open Pit Mine

The Baloo Open Pit Mine is located within the same district as Lake Cowan and is a part of HGO. This deposit features a 1.8g-2g open pit with an additional 6,000oz supply. This site is located 18km from the mill. The new discoveries in this region include 21g at 3m which is a part of a larger system.

The grades featured at the Baloo Open Pit Mine in 2016 had 66m of 11g, 38m of 6.4g, and 12m of 26g. Karora Resources has followed up on this ore through its drilling and discovery program. The company hired an independent CSA in Perth, Australia to evaluate the existing data. The company plans to operate 7 drills at HGO by the end of 2021 to carry out a massive drilling program. 

The Father's Day Vein

The Father's Day vein is a high-grade gold discovery that extends to 340m within the Beta Hunt zone. The company anticipates a minimum supply of 30,000oz gold from this vein. 

Safety Considerations

At the Beta Hunt mine, Karora Resources chose to pursue the mining of the entire shear instead of toll mining. This was done to prioritize the safety of the staff. Through this process, the company was able to get 93% recoveries from their processing plant. 

Karora Resources' board considered an ore sorter for its site, however, due to the high costs, it plans to continue mining the entire shear and processing it at its mill. It is important to note that the company places a strong emphasis on processing different ore feeds and this is a crucial part of their ore stockpiling process. The stockpile is then blended through the mill to obtain the ideal recovery for the given supply. 

The Nickel Supply

Throughout their drilling operations, Karora Resources has uncovered an abundance of high-grade nickel. The company looks at nickel as a by-product credit. It made 2 new nickel discoveries in recent times, namely the 30C and 50C where the nickel grades were found to be 11% and 18% respectively.

For every ounce of gold produced at Beta Hunt, the company observes a $40 cost reduction due to nickel. The company is currently awaiting the second round of assays. It continues to carry out drilling operations along with the establishment of a dedicated nickel team for exploration. A future nickel mine is also planned with a projected timeline of 5-8 years.

Karora Resources has the added benefit of existing infrastructure, a milling solution, and permits in place. This enables them to jumpstart the drilling operations and work towards building a mine. 

ASX Listing Considerations

Karora Resources is planning to get listed on the ASX (Australian Stock Exchange). The company has received a lot of interest from Australian institutions and investors looking to purchase stock. It is looking for significant developments in its operations before getting listed as It already has a strong presence in the Canadian and US markets. 

The Dumont Deal 

Karora Resources sold their 28% interest in the Dumont Nickel Project to two private funds advised by Waterton Global Resource Management, Inc. The process is ongoing and the company is looking for material bids. This sale has the potential to generate an additional $35M in Karora Resources' treasury.

To find out more, go to the Karora Resources Website