K92 Mining (TSX-V: KNT) Capital Markets Advisor Bryan Slusarchuk on Production Increase that Pushes the IRR to 350% at the 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, how are you this morning?
Bryan Slusarchuk: Doing great, Gerardo. Thank you.
Gerardo Del Real: We spoke a couple of weeks back. We touched on it then, we said there was going to be a lot of near-term catalysts and positive news, that if you execute it should absolutely be recognized by the market. I think today's news that you are formally announcing that you want to double capacity at the Kainantu Gold Mine to 400,000 tonnes per year is one, a milestone I should congratulate you on, but two, very similar to what you've done. You've executed on the exploration side, you've executed on the production side, you're now doubling the capacity.
And what sticks out to me – there's two things I want to touch on. The very, very low capital costs, and what the internal rate of return would now be if you factor in the expansion, an astonishing 350%. Can you fill in the details, Bryan?
Bryan Slusarchuk: Absolutely, Gerardo. I think people were very excited when we came out of 2018 with such strong momentum. We finished 2018 with a record Q4 of production. We beat all of our 2018 estimates and guidance, in terms of production. We really established some momentum throughout the year. But as the CEO, John Lewins, had mentioned, 2018 was a very important year for setting the stage. But 2019 ought to be absolutely transformational. And I think that that transformation of the company has really started today, with today's announcement of the formal decision to expand production. And this expansion decision will enable us to double capacity at the Kainantu Mine.
This will result in us processing 400,000 tonnes per annum, equating into production on average of 120,000 ounces per year over that 13-year minelife. Now, when you talked about the internal rate of return, it's important to step back and remember one of the very compelling investment theses when we first entered this project. It was that this was a very high-grade operation, had huge exploration and expansion potential. And we would benefit from the fact that not only was significant capex invested by previous operators, including Barrick Gold during the historical operations of this project, but that we would benefit from the overbuilding of certain aspects of the operation, including the mill.
So for very small capex, we're able to undertake a dramatic expansion. We're obviously in very good shape to undertake this expansion, because production is going so well. Our cash flow is strong. This enables us not only to undertake the expansion, but also very aggressively ramp up our exploration efforts.
Gerardo Del Real: Now, you haven't wasted any time. The company has already spent, I believe, approximately $3 million US on a mobile plant, fixed plant, and the camp in Q1 of 2019. That is a part of the initial capital expenditure that you outlined in the release.
Talk to me about the exploration effort. I liked that you used the word aggressive. I know it was a point in the news release to mention that although you have an estimated 13-year minelife, that is likely conservative given the aggressive exploration you're undertaking.
Bryan Slusarchuk: That's right, Gerardo. Remember, this is phase two of a three-pronged expansion program. Phase one was to get up into production, be producing at that annualized rate of 50,000 ounces per annum, be cash flow positive. We've done that. That box is ticked. The next phase is this phase that we've announced has now commenced. The announcement today that we're ramping up to this 120,000 ounces plus per annum level. That's on its way. That has started. And as you mentioned, we've already, in the first quarter here, invested almost $3 million US on the mobile plant, fixed plant, and camp, all of which is part of the initial capital expenditure related to this expansion. Phase three is bigger yet. And that's the question mark that will be answered over the course of the next several months to a year. Phase three will entail answering the question, what should Kora ultimately produce at? How big is this deposit? And what rate of production should Kora ultimately run at?
As the CEO, John Lewins, mentioned today in the news release, the company's committed to a major program of exploration. Three diamond drill rigs are operating underground and major development is focused on expanding the Kora North resource with a target of 5 million ounces by the end of 2019. And as John goes on further to state, with the Kora deposit open along strike and at depth, this target is considered realistic within the current 2019 drilling program. And remember, in 2019 we're doubling the number of meters drilled underground to 20,000 meters from less than 10,000 meters in 2018. So this is the Kora resource expansion program. At the end of the resource expansion program, when we figure out how big Kora ultimately is, we will then be able to come to the market and talk about just how big that phase three will be.
So we've laid out a very systematic three-phase approach to expansion. We've been achieving and delivering on that business plan ahead of schedule and ahead of expectations in terms of ounces, as indicated by the fact we nicely we beat the high end of our production guidance last year. Now with the drills turning funded by cash flow from operations, we look to aggressively expand this Kora resource this year.
At the same time of course, remember outside of Kora, which has huge size potential, and we know is very high grade. You've got a 400 square kilometer land package here with multiple targets, including high-priority porphyry targets, such as Blue Lake. You've also got in the vicinity of Kora the opportunity for multiple parallel veins, etc. And Kora, because it's a nice wide vein system, ultra-high grade, it's amenable to very low-cost mining. And again, in addition to the low capex, that low cost of mining and ultra-high grade is resulting in this really fantastic IRR.
Gerardo Del Real: Fantastic is an understatement. Again, 350% with a net present value, at 5%, of US $559 million after tax. I get the feeling you may not be around by the end of 2019. But it's been fun watching the team execute, Bryan.
Bryan Slusarchuk: Well thanks, Gerardo. And what I would say, we intend to be around. We're going to keep aggressively building this business. We're going to aggressively build the high-grade resource. We're aggressively ramping up production. Of course, if there ever is the hypothetical situation relating to M&A, we've got some of the best M&A guys with the best M&A track records in the industry on our board and on our management team. I'm sure they will get maximum value for shareholders, if that day ever comes. But the real focus here is continuing to build this business, build the high-grade resource, and rapidly build the production profile. And also start to advance some of these high-priority exploration targets.
Gerardo Del Real: Fantastic. Good work again, Bryan. Congrats.
Bryan Slusarchuk: Thank you, Gerardo.