K92 Mining Inc. (KNT) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual General and Special Meeting of K92 Mining Inc. Please note, the meeting will be recorded. I would like to introduce John Lewins of K92 Mining Inc. Mr. Lewins, the floor is yours.

Thank you. Good afternoon. It is now after 2:00 p.m., the scheduled start time of the meeting. My name is John Lewins, Director and CEO of K92 Mining Inc., and I will chair the business of today's meeting. I welcome you to the company's Annual General Meeting and Special Meeting of Shareholders. We are pleased to host the meeting through this virtual meeting platform accessible to all our shareholders, regardless of physical location, to participate, submit questions and vote. I officially call the meeting to order and appoint Nancy La Couvee, Corporate Secretary of the company, to act as Secretary of the Meeting, and Sandy Hunter of TSX Trust Company to act as the scrutineer of the meeting. Only registered shareholders who held shares in the name as of September 20, 2021, the record date of this meeting, or their validly appointed proxy holders are entitled to vote at this meeting. To expedite the meeting, we will deal with the formal business of the meeting first, and management will give a short presentation and answer any questions which you have. I will now commence the formal business of the meeting. Notice of meeting. On September 28, 2021, the Notice of Meeting, Management Information Circular, Formal Proxy and Request for Annual and Interim Financial Statements of the company were mailed to all shareholders of record as of the close date of business on September 20, 2021. The affidavit as to such mailing, as prepared by TSX Trust Company, is available for inspection by any interested party. In view of this, unless there is an objection, I will dispense with calling for the reading of notice and will take the notice of meeting as read. The declaration as to mailing will be filed with the minutes of this meeting, to be retained by the Secretary with the records of the meeting. As such, proper notice of the meeting has been given. Voting procedures. If you voted prior to the meeting by proxy, you do not need to cast your vote at the meeting unless you wish to change your vote. As specified in the Notice of Meeting, the items of business for the meeting are: to receive the audited financial statement of the company for the year ended December 31, 2020; to fix the number of directors at 8; to elect 8 directors for the ensuing year; to appoint the auditor for the ensuing year and to authorize the directors to fix the auditor's remuneration; to approve the adoption of the new articles of the company; and to approve the adoption of the company's share compensation plan. The resolution of new articles of the company must be approved by a majority of not less than 2/3 of votes cast at the meeting. All other resolutions must be approved by a simple majority of votes cast, either in person or by proxy, as ordinary resolutions. We will conduct the vote on each of the matters by a poll. On a poll, every shareholder is entitled to vote on the matter, has 1 vote in respect of each share entitled to be voted on the matter and held by the shareholder. The poll will be open for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of the discussion on each resolution prior to casting your vote. Registered shareholders and the duly appointed proxies will have the ability to vote at the meeting if they have not voted by proxy or to change their vote if they have voted by proxy. Once voting is declared open, please click the voting button and the left -- on the left [indiscernible] and voting choices will be displayed on the pop-up window. To vote, select your voting direction and click submit to cast your vote. If you have already submitted votes by proxy and don't wish to change your votes, no further action is required. For registered shareholders and the duly appointed proxies only, there will be an opportunity to ask questions by text -- ask a question. Once discussion on all items of business have concluded, I will give you a minute to enter your vote online and then declare voting closed on all resolutions. Preliminary voting results will be provided during the meeting and final detailed voting results will be provided after the conclusion of the meeting. The results of the meeting will be announced in a news release and will be available on our website after the meeting. We will run through each of the items on the agenda in turn, responding to questions on that item of business while it's before the meeting. In order to expedite the formal business of today's meeting, I will make all motions a seconder is not required. I now declare the polls open for all resolutions. I was advised by our scrutineer that there is a quorum present, being 1 person present or represented by proxy. I direct that the final report of the scrutineer will be filed with the minutes of this meeting. The notice of the meeting having been given as required by the articles and by the Business Corporations Act, British Columbia and a quorum being present, I declare this meeting to be duly called and constituted for the transaction of business. Minutes of previous meeting. The last meeting of shareholders was held on July 8, 2020. I confirm the minutes from the 2020 Annual General Meeting and Special Meeting reflect a true record of proceedings. The minutes of that meeting are available for review by shareholders. Unless someone wishes to have them read, I move that the reading of the meeting of the last Annual General Meeting and Special Meeting be dispensed with and that the minutes be taken as read and approved and adopted as tabled. Annual financial statements. The initial item of business is consideration of the audited financial statements of the company and the report of the auditor. It is customary to have the meeting acknowledge receipt of the financial statements. A copy of the financial statements and the auditor's report for the year ended December 31, 2020, are available on the company's website and the SEDAR website as well as by request to the company should any shareholder wish to see them. Therefore, I move that the audited financial statements of the company for the year ended December 31, 2020, and the auditor's report on those statements be acknowledged as having been received. Is there any discussion? If there are no questions, I will declare the financial statements acknowledged as received. Item 1. I move that the number of directors for the ensuing year be fixed at 8. Is there any discussion? If there are no questions, please cast your votes on item 1 by hitting the voting button before we move on to item 2. [Voting]

Moving to the next item. Election of Directors, Item 2. The second item of business is the election of directors of the company. Directors elected at this meeting will hold office until their successors are elected or appointed, subject to the company's articles of business -- Articles of Business Corporations Act, British Columbia. Each of R. Stuart Angus, Mark Eaton, Anne Giardini, Saurabh Handa, Cyndi Laval, John Lewins, Ian Stalker and Graham Wheelock have informed the company that they will stand for election at the meeting and are management's nominees for election to the Board this year. I nominate individuals as directors of the company to hold office until the next Annual General Meeting of the company or until their successors are duly elected or appointed, subject to the revisions of the company's article. R. Stuart Angus, John D. Lewins, Mark Eaton, Anne E. Giardini, Saurabh Handa, Cyndi Laval, Ian Stalker and Graham Wheelock. Are there any other nominations for other directors? As there are no further nominations, I move that nominations be closed. Are there any questions on this motion? If there are no questions, please cast your votes on item 2 before we move into item 3. Please vote now. [Voting]

A majority of the votes cast are in favor of the election of the nominees. Moving to the next item, appointment of auditor. The third item of business is the appointment of the auditor of the company for the ensuing year and to authorize the directors of the company to fix the remuneration for the auditor. I now move that PricewaterhouseCoopers LLP, chartered professional accountants, be appointed. If there are no questions, please cast your votes for item 3 before we then move on to item 4. Please vote now. [Voting]

Adoption of the new articles of the company, a summary of which was set out in the management information circular dated September 20, 2021, and was mailed to all shareholders in relation to this meeting. The text of the special resolution to approve the new articles is set forth on Page 21 of the information circular. I now move that -- the special resolution set forth on Page 19 of the Management Information Circular. I now move that the resolution set out on Page 19 of the information circular to approve the adoption of the share compensation plan be approved, which, unless shareholder present desires the reading of it, I will not repeat. Is there any discussion? The scrutineer has provided the preliminary report of the results of voting at today's meeting. On the matter of setting the number of directors, I'm advised by the scrutineer that the greater than -- the majority of the votes cast have been voted in favor of setting the number of directors at 8. Therefore, I declare that this motion is carried. On the matter of approval of the share compensation plan, I'm advised by the scrutineer that greater than a majority of votes cast have been voted in favor of the share compensation plan. Therefore, I declare that this motion is carried. A news release disclosing the voting results will be issued and filed on SEDAR and will be available on our website in due course. There's no further business to be brought before the meeting, I declare that this meeting be terminated. This concludes the formal portion of the meeting. I'd like to introduce to you -- oh, myself, who will now give a corporate update presentation. Following this, I'll answer any questions. I'll now move on to a presentation. K92 Mining, growing production and transformative discoveries. Start with a forward-looking and cautionary statements, which I would ask you all to read in the next 10 seconds. This is obviously available on our website for a more detailed read. K92 Mining, as we see it, very much a unique opportunity. This is rapid, self-funded production growth. Our Stage 2 expansion was commissioned third quarter of 2020, which increased our throughput from 400,000 -- from 200,000 tonnes per annum to 400,000 tonnes per annum or approximately 120,000 ounces per annum gold equivalent ounces. We have recently advised of approval of our 2A, Stage 2A expansion, which will increase annual throughput by a further 25% to 500,000 ounces -- 500,000 tonnes per annum, and with an equivalent increase as well in production, so moving from 120,000 to approximately 150,000 ounces gold equivalent on an average basis. Stage 3 expansion to PEA -- was completed in the PEA, and we're busy now with a full blown feasibility study, and that is looking at increasing our run rate to an excess of 315,000 ounces per annum. We've got significant resource growth with measured and indicated having increased by 450% and inferred by 120% from 2017 to April 2020, and a further update of the resource -- the Kora resource due at the end of November, beginning of December. The number of nearby high priority vein targets, major one of which currently is Judd, which we anticipate having a maiden resource by the end of this quarter or early in the following quarter. We now have up to 11 rigs operating, which in 2018 was 2 rigs. So we significantly increased the number of rigs that we have. And all-in sustaining cost in 2020, $780 per ounce gold. We have a large land package, around 860 square kilometers, highly prospective both for the vein systems, high-grade vein systems as well as porphyry targets, and we've got drilling underway on resource deposit. Stage 1 was basically to get our operation up to 200,000 tonnes per annum, 50,000 ounces per annum. That was achieved pretty much in 2018. From taking out a bulk sample in October 2017, we declared our first commercial production, was based on a PEA which we completed in January 2019. And which will see us produce an average of 120,000 ounces gold equivalent per annum over a 13-year period. Projected capital cost of that project is $15 million, projected after-tax NPV5 over $700 million, and that was based on $1,500 an ounce gold, $18 an ounce silver and $3 a pound copper. Stage 2A, which was recently announced, is a further 25% increase in our throughput. So very low expansion capital cost, which is $2.5 million. We're looking to commission it second half of 2022. Now part of that, our Stage 3 sustaining capital for mobile equipment, underground equipment, is to be accelerated to allow us to achieve that in that time period. Stage 3 expansion. As I noted previously, we completed a PEA on that in 2020, initial 12-year mine life, million tonne per annum throughput, producing 318,000 ounces gold equivalent with commissioning due to start late 2023. Projected initial CapEx, $125 million. And projected after-tax NPV5 $1.5 billion at the same metal prices, as I mentioned previously. The DFS on that should be completed in the first quarter of 2022. And we should have an updated resource, which will underpin that by the end of November, beginning of December. As you can see from the operational performance since we started commercial production, we've had a gradual ramp-up in production as we commissioned our Stage 2. Point out that during almost the second, third and fourth quarters of 2020 and obviously the first, second and third quarter of 2021, we have -- we've been operating in the challenging COVID environment. And despite that, we have been able to commission our Stage 2 expansion. We've been able to ramp up our production and sustain relatively high levels of overall production. With the commissioning of our Stage 2, we saw a throughput increase in the -- from an average of 542 tonnes per hour -- per day in the second quarter of 2020 to over 950 [indiscernible], we've seen about an 80% increase in throughput. And we anticipate that our design throughput of 1,100 tonnes per day will be achieved during this quarter. And in fact, in the September month of the last quarter, we averaged throughput through the plant of 1,100 tonnes. Looking at our [indiscernible] ball mill, which is we had targeted 1,100 tonnes a day in this expansion, what we've seen is that, in fact, we are able to achieve a significantly higher throughput through the ball mill. And therefore, we've looked at other aspects of the plant that would allow us to get the full capability from that ball mill and get up to 1,400 tonnes per day. On the underground side, it's about accelerating Stage 3 sustaining capital and expansion capital. I'd note that we have achieved over 1,400 tonnes in a day on multiple days now. And with additional equipment that we are looking to bring in, which is a TC1000 crusher; some additional flot cells; additional filter press, which in fact we're commissioning right now, the plant, we believe, will comfortably do the 1,400 tonnes per day. On the mining side, we have additional mobile equipment, which we will be bringing in, in the first half of 2022 and effective second half of 2022. And that will allow us to ramp up our underground production up to 1,400 tonnes per day. I'd also note that with the new mining front at Judd, that increases our flexibility of underground mining. Stage 3. The PEA really showed us an extremely robust project NPV5, $1.5 billion at $1,500 an ounce gold, $2 billion at $1,900 an ounce. Very much a Tier 1 asset in terms of scale and costs of below $400 an ounce all-in sustaining for gold or below $500 an ounce gold equivalent. An initial 12-year mine life with multiple upside opportunities and, importantly, self-funded. Cash flow that we're currently generating will allow us to cover the initial capital expenditure [indiscernible] overall production profile, you can see from the PEA, peaking at around 350,000 ounces a year. Importantly, as I mentioned, this is looking at our cash flow. And you can see that we remain cash flow positive during the expansion. Major part of the Stage 3 expansion is the development of a new twin incline system. This is very much a long-lead item for Stage 3 and potentially Stage 4 expansion. Recognizing that this is a long-lead item we committed to the twin incline last year. And I can tell you, currently, each of the 2 twin inclines are over 700 meters in to 5x5.5, 6x6.5. And at that size, the twin incline system will, in fact, be able to handle up to about 3 million tonnes per annum. So very much allowing for potential future expansion as well as Stage 3 expansion. Looking at that potential further expansion, once we've commissioned our Stage 3, which will be a brand-new plant, Stage 2A plant will be placed on care and maintenance. So there is a potential that as we expand our resource and drill further to the south and drill at depth, should we expand our resource, then we would be able to increase our throughput by up to about 50% at a very low CapEx by simply bringing that plant back into production. And I also make the point that in the studies, one of the things we'll be looking at in the current DFS is that our initial PEA had about 4 million tonnes running at about 4 grams per tonne, which was excluded from the mine plan. That grade is well above our economic cut-off grade, a marginal cut-off grade. And therefore, those tonnes and those ounces are profitable ounces, and so we're looking to bring those account to account in the feasibility study. Hence, we're looking at the feasibility study going up to about 1.2 million tonnes per annum from the 1 million tonnes that we did in the PEA. Looking at our near mine vein field potential and exploration targets. We drilled about 20% of the near mine vein field. And so we have enormous amount of potential near mine and within the mine lease itself to actually extend our resource. And a perfect example of that is Judd where we, as I mentioned, drilling the Judd within our mine lease. We expect to have a maiden resource by the end of this year or early next year. But we're currently also drilling now at Kora South, which is to the south of our mining lease and our exploration area, and have plans to be drilling at Kora deeps, which is going below our current resource, which basically every hole that we drilled at depth to date has come back with commercial grade and thickness, so we don't know how deep it goes. And then Karempe, where we've had some pretty exciting results last year. So looking at those, as I mentioned, Kora deeps, Kora South, where we know that the structure extends for up to a kilometer beyond the mine and Judd being a subparallel system to Kora, up to 4 veins, high-grade historical and, of course, the recent intersections that we've seen there really gives us a lot of confidence that there is excellent potential at Judd. Karempe is [indiscernible] 2 veins. So there are 2 subparallel veins, about 20 meters apart. And we're mining both of those veins at present. And as you can see from the drilling, we have been targeting basically 300 meters above and below our current access level at 1,200 to bring in our measured and indicated. Our intent is, as the twin incline comes in and provides access at a deeper level, we will use that as the platform to look to expand the resource at depth. As you can see, latest drilling results, some of the best ones we've seen recently, 4 meters at 607 grams per tonne, 31% K2, going to 20 grams per tonne and 15% in K1, 10% in K2 hit rate. So this really underlines the -- just one excellent resource and deposit we have in Kora K1 and K2. Kora South, I mentioned Kora is our first surface drilling program, first ever surface drilling program at Kora South, and we're also drilling it from underground. This has the potential to double the strike length of Kora. Judd. This is a parallel vein system approximately 150 to 200 meters, Judd. Very similar epithermal vein system to Kora. And we started our first drilling program there third quarter last year. And the initial work that we did on Judd was actually a development along strike. So we ran a bulk sample specifically of just Judd through the plant. We got very similar recoveries to that, which we see in Kora, 89% gold, 97% copper, 88% silver. With a potential in the test work that we've been doing as part of the definitive feasibility study, we've seen this 350 gram per tonne gold equivalent, and also in that same development 5.7 meters at almost 100 gram per tonne. So there really are some exceptional grades within the Judd deposit, although it is -- as you will see there from the face sampling, it is variable. It does appear to have higher and lower grade -- higher than we've seen to date at Kora, which I think is very positive. Although I'd make the point, Kora, we've got about 400 holes; here we've only got just over 20. So there's still a long way to go in Judd. You can see there in the sort of orange, pinky color the area that we are targeting to bring in our initial 3.6 meters at 27 gram per tonne. So this very much a new and expanding mining area for the company. In terms of Karempe, it is challenging to drill from surface. It's on the edge of the mountain. And so there's only a low drilling has been done there for over 20 years. So really very, very high potential and targets that we've got, looking at potentially the second half of next year to get into. And then finally, just in looking at the overall exploration picture, obviously, multiple targets for the company within our [ expand ] 2 rigs drilling. And we anticipate having a news release out on the drilling that we've been doing and the results from that at Blue Lake by the end of this quarter. So that [Audio Gap] Well, as there are no questions, I'd like to take this opportunity to thank everyone for attending the AGM and to wish you all the very best for the balance of the year and for the upcoming Christmas period. I think we're all looking forward to 2022, hopefully a better year in terms of things like COVID than 2021, and certainly for K92, an extremely, extremely exciting year with many things coming to the full completion of the DFS, first resource at Judd, continuing work at Blue Lake and commissioning of our Stage 2A expansion and, we believe, start of our Stage 3 expansion. So thank you for attending.

Ladies and gentlemen, as the meeting has now concluded, you may now disconnect.