Karora Resources - Poised for Production Growth in Western Australia

• Karora Resources produced 40koz gold last quarter, on track for 145-160k oz guidance in 2023
• Growth plans target 2M tonnes/year at Beta Hunt by the end of 2024, boosting production to 165,000-180,000oz
• Added $84M cash last quarter; will invest ~$100M in 2023 across development and exploration
• Resource update end of 2023 expected to show growth at flagship Beta Hunt mine
• Despite weak sector sentiment, Karora building fundamental value through exploration and low-cost production growth

Leveraging Exploration Success for Production Growth in Western Australia

Karora Resources is an emerging mid-tier gold producer focused on the central goldfields region of Western Australia. With its expanding low-cost production base and extensive exploration upside, Karora offers investors leverage to a potential rebound in depressed gold equities.

Production and Costs On Track to Meet Full Year Guidance

In its latest quarterly update, Karora Resources reported gold production of approximately 40,000 ounces for Q3 2023. This keeps the company firmly on pace to meet its full year production guidance of 145,000 to 160,000 ounces. Through the first three quarters of 2023, Karora has produced around 120,000 ounces of gold.

While inflationary pressures have impacted costs industry-wide, Karora expects to remain within its guidance range for 2022 all-in sustaining-costs of US$1,100 to US$1,250 per ounce. By forecasting costs at the upper end of guidance, the company has allowed room to absorb continued input cost escalation. Karora’s ability to largely maintain costs reflects its operating leverage as production scales up.

Importantly, Karora grew its cash position to $84 million by the end of the third quarter. It also has not utilized a US$30 million credit facility. With this strong balance sheet and liquidity, Karora is financially well-positioned to fund targeted growth initiatives over the coming year.

Market Weakness Obscuring Fundamentally Strong Gold Producers

The gold mining sector has faced significant headwinds in 2023 despite broader resilience in the gold price. With rapidly rising interest rates, generalist investors have prioritized fixed-income securities over non-yielding gold. This has prompted outflows from gold mining equities.

However, with inflation still elevated and rates potentially nearing a peak, the opportunity cost of holding gold may start declining. In that scenario, investor demand for bullion as a hedge could strengthen. History shows gold performs well when real yields turn negative and during periods of U.S. dollar weakness.

A bullion uptrend historically lifts gold miners as well. When capital begins rotating back into the overlooked gold space, producers with high-quality assets, clean balance sheets, and sound growth plans should benefit disproportionately. Astute investors looking for leverage could capitalize by positioning in these names ahead of a sentiment shift.

Exploration Success Continues Expanding Resources at Flagship Beta Hunt Mine

The centerpiece of Karora’s production base and growth outlook is the Beta Hunt mine, located near the town of Kambalda. Beta Hunt is a gold-nickel operation, but over 80% of revenue comes from gold production. Karora acquired Beta Hunt in 2018 when it held resources of just over 400,000 ounces of gold.

Through a disciplined exploration program deploying advanced sensing technologies, the company has increased Beta Hunt’s gold resources to 2.4 million ounces in just three years. This rapid resource growth has come at an extremely low discovery cost of approximately $35 per ounce. Very few gold producers worldwide have been able to add resources at costs this efficiently.

Karora plans to announce an updated resource estimate for Beta Hunt by the end of 2023 which is expected to show further growth. Despite mining over 400,000 ounces since acquiring Beta Hunt, resources have steadily expanded each year. This demonstrates the significant blue sky potential that remains.

Recent exploration drilling in 2023 has delivered strong results, including high-grade gold intercepts outside the zones currently being mined at Beta Hunt. However, most of these encouraging results will not make it into the 2023 resource update due to timing constraints. This signals the potential for ongoing resource additions in 2023 and beyond as these drill results get incorporated.

In addition to adding resources through new discoveries, Karora’s drilling has encountered zones with higher grades than those currently being mined at Beta Hunt. This presents a meaningful upside by increasing the average grade fed to the mill over time through mine planning. Taken together, resource growth and grade potential further strengthen Beta Hunt’s production outlook and strategic value.

Disciplined Investments to Unlock Additional Production Capacity

Given the success of its exploration program, Karora is making prudent investments to expand Beta Hunt’s production capacity. This will position the operation to leverage its growing gold resource base.

The company is progressing on the completion of three new ventilation raises to increase airflow and enable higher mining rates. With the final raise slated for completion by the end of 2023, all three new raises will be online and operational by year-end.

In 2024, Karora plans to ramp up underground development work across additional mining zones unlocked by the improved ventilation. By opening up more areas for mining, the company aims to double Beta Hunt’s production rate to 2 million tonnes per annum by the end of 2024. At that capacity, Beta Hunt could produce between 165,000 to 180,000 ounces of gold annually as a single asset.

Very few junior gold producers operate mines with this level of production and scale from a single asset. Even among mid-tier gold miners, examples are limited. Beta Hunt’s expanding production output is underpinned by its substantial gold endowment, leveraging Karora’s exploration success.

The capital investments being made by Karora carry an attractive return profile at current gold prices. With Beta Hunt’s cash operating costs averaging below $1,000 per ounce, even at the higher end of capital spending guidance, the project payback would be less than two years. This highlights the economic merits of expanding production into the mine’s large resource base.

Well Positioned for an Upturn in Gold Sentiment

Despite the current macro headwinds facing gold, Karora continues executing its growth-focused strategy across both exploration and underground development. By maintaining this momentum, the company aims to position itself as a leading mid-tier Australian gold producer.

Importantly, Karora’s institutional investor base has expressed continued support and patience amidst the recent share price weakness. With large long-term shareholders including Van Eck Associates, Franklin Templeton, and Sprott, Karora knows its equity story remains compelling.

These investors are not fixated on short-term gyrations in Karora’s share price or gold sentiment more broadly. Their focus is on the value being created as Karora systematically explores and develops its asset base. They recognize the company is assembling tangible resources, extending mine life, and setting the stage for significant production growth and cash flow expansion.

Ultimately, Karora’s institutional shareholders care about growing the fundamental value underlying their investment positions. When general mining equity sentiment improves in the future, likely driven by a bullion catalyst, Karora will be among the first quality gold producers benefitting from a capital rotation back into the space. Astute investors positioning at current prices could be well rewarded for their patience as this played out.

Karora’s Path to Mid-Tier Gold Producer Status

Karora Resources represents a compelling leverage point to an eventual gold market recovery. The company combines growing low-cost production from a top-tier jurisdiction, extensive organic growth potential through exploration success, and a strong balance sheet.

Despite gold sector headwinds likely extending the timeline, Karora’s path towards mid-tier producer status appears intact. At peer-leading production levels above 200,000 ounces per year, the markets would afford Karora a quality valuation in line with larger producers. Upside from new discoveries at Beta Hunt and other growth drivers across Karora’s portfolio provide further upside potential.

Crucially, by maintaining its growth investments through challenging markets, Karora is positioning itself as an early winner when sentiment improves. Karora offers a prudent opportunity to take the long view.