K92 Mining (TSX-V: KNT) Capital Markets Advisor Bryan Slusarchuk on Details of the PEA at the Producing Kainantu Gold Mine
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is Capital Markets Advisor for K92 Mining (TSX-V: KNT)(OTC: KNTNF), Mr. Bryan Slusarchuk. Bryan, Happy New Year. Good to be back at it. How are you?
Bryan Slusarchuk: Doing really well, Gerardo, thanks. Happy New Year to you too.
Gerardo Del Real: I appreciate it. You're kicking off the new year with a bang. You just released some PEA results from K92. Let me tick off some of these boxes real quick because the numbers are pretty impressive. You have an internal rate of return of 350%. That's based on metrics that could get an NPV of $710 million pretax, that’s US dollars, or $559 million after tax.
The grades are amazing and it's important to note, we talked a bit off air, that these numbers are based on what's happening on site. Not a gentleman or a woman behind the computer sitting there coming up with these numbers, hypothesizing. These are real numbers from the operation. Can you go over the details, Bryan?
Bryan Slusarchuk: For sure, Gerardo. And I think a real benefit here to the authors of the PEA is the fact that we are an operating and producing mine. As your regular listeners will know, we declared commercial production at Kainantu last year. Drilled off a resource which has been grown twice subsequently and we're processing and mining as we speak. Normally during these types of assessments, you're really having to conceptualize various numbers that we actually have hard concrete operating data for. Many of these numbers are based on existing operational results that we're seeing today in terms of costing, materials, etc.
What we see within this PEA is a very low CapEx requirement, US $13.6 million, to undertake the expansion. I think it's extremely important to note from today's news release the quote from the CEO John Lewins that the initial capital cost for the expansion is estimated at less than US $14 million and can be met entirely from cash flow from existing production. The IRR that you mentioned at 350% is obviously just spectacular and the PEA indicates production of 145,000 ounces gold equivalent per annum over the first five years. We see cash costs within this PEA at $429 gold equivalent ounce and all-in sustaining costs at $615 an ounce.
Really exceptional, really special numbers that we're seeing. Remember, this Kainantu operation produced over 45,000 ounces gold equivalent in 2018 at a cash cost below $600 an ounce. We're expected to produce in excess of 60,000 ounces in 2019 assuming there's no expansion, or over 80,000 ounces if the expansion envisioned in the PEA takes place. That's of course because the ramp up to get to the 145,000 ounce per annum level will take 12 months.
I think, Gerardo, what is really key to hammer home on here – in addition to the low CapEx, high internal rate of return, very low costs and high grades – what's really key to note is that we're benefiting from this original investment thesis that Kainantu would have a big jumpstart because of existing infrastructure and because of the fact the mill was overbuilt, it's taking very little capital to expand up to this type of level, because we're processing, we know the metrics as to how that mill operates and because we're mining and we're underground now and there's existing underground development, the CapEx underground to expand to this rate is also low.
I think, Gerardo, that the 12 months’ timeline laid out in the news release today to fully execute this expansion is just very, very fast by industry standards. Some of that process, the expansion process, has already started as detailed in today's news.
Gerardo Del Real: I think it's an important point, Bryan, that the PEA isn't for development of a new project. It is for expansion of the operation which is already producing. And for people that may not be familiar with the story, that's an important point here.
Bryan Slusarchuk: That's right, Gerardo. And there has been some great analyst coverage on this with price targets ranging from $2.00 Canadian to $2.75 Canadian by the likes of Macquarie, Clarus, PI Financial, really well-known names in the space. These analysts have all been there. They've been underground, they've seen the processing facilities. I would encourage your listeners to take a look at some of that research. I would anticipate nice update notes based on today's exciting news release from the company.
Outside of that, this is a start to 2019 but there are other catalysts in the very near term here. I would expect, based on the company disclosure out there, that in the very near term we'll see final 2018 production numbers. We'll see 2019 guidance, a formal expansion decision and of course we'll see ongoing drill results from expansion and exploration drilling.
We have two drills turning on site right now and soon to be a third drill. All of this, the drilling, the expansion work, the exploration work, all of this is happening because of the fact that John Lewins, the CEO, and his team in PNG (Papau New Guinea) have done a great job getting us to a cash flow positive position. Because of the fact we're cash flow positive, we've got a lot of flexibility as we execute and implement our business plan on site to grow the resource and grow the production profile in 2019.
Gerardo Del Real: You've done an excellent job executing both on the production and exploration side. You're Capital Markets Advisor for K92, I got to ask you about the macro backdrop and the setup for 2019. What are you seeing? How do you feel about the gold space this year?
Bryan Slusarchuk: Very constructive on the gold space. I think 2018 was a difficult year in the equity markets for gold companies, as we all know. I think that K92, over the past several months, has really benefited from the fact that we don't need to raise equity, we're cash flow positive. In terms of that macro picture, I think other investors are starting to see gold as a constructive place to be. We've seen outflows from the funds cease in the precious metals space and we're starting to see some selective inflows into these funds. And therefore, I think that what's happening out there is you are seeing savvy and first mover type institutions in the precious metals space start to take or add to some names that they already have within their various funds.
I think that we've seen a constricting of supply because of the fact it's been tough times. The people that have wanted to sell these different names have sold and now that we're starting to see an institutional nibble out there again in the broader precious metals space, these stocks can start to move higher on relatively low volume. And if we see a wave of generalists reenter or enter the gold space, the moves in some of these gold equities can just be explosive.
Gerardo Del Real: Well put, Bryan. As always, thank you so much for your time. I get the feeling we're going to be talking with each other a lot this year.
Bryan Slusarchuk: Thanks so much, Gerardo.