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

Ladies and gentlemen, welcome to the Annual General Meeting of K92 Mining Inc. Please note, the meeting will be recorded. I would like to introduce Mr. John Lewins, Chief Executive Officer and Director of K92 Mining Inc., who will also Chair this meeting. Mr. Lewins, the floor is yours.

Thank you. Good morning, good afternoon or good evening, depending on where you are. It is now 3:00 p.m. in Vancouver, the scheduled start time of the meeting. My name is John Lewins, Chief Executive Officer of K92 Mining Inc., and I will Chair the business of today's meeting. I welcome you to the company's Annual General Meeting of Shareholders. We're 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 Le Couvee, Corporate Secretary of the company, to act as Secretary of the meeting; and Deanna Guilfoyle of TSX Trust Company to act as scrutineer of the meeting. Only registered shareholders who held shares in their name as of May 20, 2022, 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 then I will provide a presentation on the company, and we'll answer any questions which you may have. I'll now commence the formal business of the meeting. Notice of meeting. On June 9, 2022, the Notice of Meeting, Management Information Circular, Form of Proxy and Request for Annual and Interim Financial Statements of the company were mailed to all shareholders of record as of the close of business, May 20, 2022. 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 a reading of the notice and I will take the notice of the 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 statements of the company for the year ended 31st December 2021; to fix the number of directors at 9; to elect 9 directors for the ensuing year; and to appoint the auditor for the ensuing year and to authorize the directors to fix the auditor's remuneration. All resolutions must be approved by a simple majority of votes cast either in person or by proxy as ordinary resolutions. We will conduct the votes of each of the matters via poll. On a poll, every shareholder entitled to vote on the matter has one vote in respect of each share entitled to vote on the matter and held by that 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 discussions on each resolution prior to casting your vote. Registered shareholders and their duly appointed proxy holders will have the ability to vote at the meeting if they have not voted by proxy or to change their vote if they've voted by proxy. Once voting is declared open, please click the voting button on the left of your screen. The text 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 your votes by proxy and don't wish to change your vote, no further action is required. For registered shareholders and their duly appointed proxies only, there will be an opportunity to ask questions by text for each resolution in turn. To ask a question, please click Ask a Question. Once discussion on all items of business have concluded, I will give you a minute to enter votes 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 the news release and will be available on our website after the meeting. We'll 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 on all resolutions. Quorum. I was advised by our scrutineer that there is a quorum present being one person present or represented by proxy. I direct that the final report of the scrutineer be filed with the minutes of this meeting. 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 October 28, 2021. I confirm the minutes of the 2021 Annual General Meeting reflect a true record of the proceedings. The minutes of that meeting are available for review by any shareholder. Unless someone wishes to have them read, I move that the reading of the minutes of the last Annual General Meeting be dispensed with and that the minutes be taken and read as 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 auditor's report for the year ended December 31, 2021 are available on the company's website and the SEDAR website, as well as by a request to the company should any shareholder wish to see them. Therefore, I move the audited financial statements of the company for the year ended December 31, 2021, and the auditor's report on those statements be acknowledged as having been received. Is there any questions? If there are no questions, I declare the financial statements acknowledged as received. Number of directors. The first item of business is the approval of an ordinary shareholder resolution setting the number of directors of the company at 9 for the forthcoming year. I move that the number of directors for the ensuing year be fixed at 9. Is there any questions? If there are no questions, please cast your vote on Item 1 by hitting the voting button before we move on to Item 2. Vote now. [Voting]

Election of directors. 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 the Business Corporations Act British Columbia. Each of R. Stuart Angus, Mark Eaton, Anne Giardini, Saurabh Handa, Cyndi Laval, Nan Lee, John Lewins, John Ian Stalker and Graham Wheelock have informed the company they will stand for election at the meeting and are management's nominees for election to the Board this year. I nominate the following 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 provisions of the company's articles. R. Stuart Angus, John D. Lewins, Mark Eaton, Anne E. Giardini, Saurabh Handa, Cyndi Laval, Nan Lee, Ian Stalker and Graham Wheelock. Are there any nominations for other directors? As there are no further nominations, I move that nominations be closed. Are there any questions on this motion? As there are no further nominations, I move the nominated be closed. Are there any questions on the motion? As there are no questions, please cast your votes on Item 2 before we move on to Item 3. [Voting]

A majority of the votes cast are in favor of the election of the nominees. And accordingly, I declare the motion carried and the persons nominated are elected as directors of the company by acclamation to hold office until the next Annual General Meeting of the company, subject to the articles of the company and the Business Corporations Act British Columbia. Item 3, 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 of the auditor. I now move that PricewaterhouseCoopers LLP, chartered professional accountants, be appointed as auditor of the company for the ensuing year, and the directors of the company be authorized to fix the remuneration of the auditor. Is there any discussion? If there are no questions, please cast your votes on Item 3 before we move on to Item 4. Please vote now. [Voting]

Final vote tally. For those of you who have not voted on all resolutions, please do so now as I will shortly close the poll. I will close the polls on all resolutions in 30 seconds to allow online viewers to catch up. [Voting]

I confirm that the polls are now closed, and I ask the scrutineer to provide their preliminary report on the results of voting. I ask the secretary to confirm receipt of the scrutineer's report and confirm that all resolutions are carried. The scrutineer has provided the preliminary report of the results of today's voting. On the matter of setting a number of directors, I'm advised by the scrutineer that greater than a majority of the votes cast have been voted in favor of setting the number of directors at 9. Therefore, I declare that this motion is carried. On the matter of election of directors, I'm advised by the scrutineer that greater than a majority of the votes cast have been voted in favor of election of all nominees being R. Stuart Angus, Mark Eaton, Anne Giardini, Saurabh Handa, Cyndi Laval, Nan Lee, John Lewins, John Ian Stalker and Graham Wheelock. Therefore, I declare that this motion is carried. On the matter of appointment of auditors, I'm advised by the scrutineer that greater than the majority of the votes cast have been voted in favor of appointment of PricewaterhouseCoopers LLP chartered professional accountants. 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. Other business. As we have now concluded the formal business of the meeting, is there any other business that anyone present wishes to bring to the attention of the meeting? If there's no further business to be brought before the meeting, I declare that the formal part of this meeting be concluded. Informal presentation. This concludes your formal portion of the meeting. I will now give you a corporate update presentation. Following this, I will answer any questions that you may have. You may submit questions through the Ask a Question icon that appears on your screen. The informal presentation. Growing production and transformative discoveries, presentation for the Annual General Meeting, June 30, 2022. We sought, as always, with our forward-looking and cautionary statements, this is also available on our website. As always, we highlight that K92 is very much a unique opportunity. Self-funded production growth, rapid. Stage 2 expansion was completed in the third quarter of 2021, which increased our throughput to 400,000 tonnes per annum. Stage 2a expansion has been approved, and that will increase our throughput a further 25% to 500,000 tonnes per annum and will be commissioned in the second half of this year. Stage 3 expansion has the PEA completed, and we will shortly be releasing the definitive feasibility study on that expansion. We've seen significant resource growth, over 970% increase in our measure and indicated, 63% in our inferred between 2017 and the first quarter of 2022. We still have extensive near resource growth potential via strike and depth extensions, plus we have multiple nearby high-priority vein targets. We've had up to 11 drill rigs operating and currently have 10 rigs operating on our sites. This is very much a large high-grade Tier 1 asset resource, which in turn has provided us a high-grade, low-cost underground mine. We've been averaging almost 14 grams per tonne since we started commercial production. All-in sustaining costs, predicted -- given guidance this year of 890% to 970%, and we're currently tracking in that region. We have a very large land package of over 800 square kilometers in Elephant Country. Although we have to admit there are actually no elephants in PNG, but there are some credibility projects. So it's highly prospective for both vein and porphyry targets. And as noted, we've got multiple rigs working here. And this is all driven by an experienced team, which we believe has very much a proven track record. In terms of our corporate structure, we're covered by 14 analysts. It's, we believe, the most of any company of our size. Market capitalization, just under $2 billion, with 227 million shares on issue. Institutional shareholder base is among the best of any of our peers and is very much a who's who of who's investing in our sector. In terms of our relative share performance, over the last 12 months, we have fairly consistently outperformed both the GDX and the GDXJ in what has been obviously, especially over the last month, a very challenging period. When we look at our operations, the first and foremost thing that we are very proud of is that we carry out what we believe to be socially responsible mining, which is the prosperity of Papua New Guinea as well as the benefit, obviously, of all of our shareholders. We've got a strong focus on our local communities and the greater PNG community in terms of the prosperity and development. The way in which we achieve that includes employing over 1,400 people as direct employees or contractors, which over 95% of PNG nationals. In 2021, we were the second largest corporate taxpayer in the mining industry. We're the largest explorer in PNG. We have one of the best safety records in Australasia as well as the best safety record in PNG. We have advanced multiple long-term social economic development initiatives, including infrastructure, scholarships, education, agriculture, business joint ventures, literacy, women's empowerment programs, to name some. We've got a strong environmental focus. This is a very, very low footprint underground mine, traditional tailings empowerment that consistently meets or exceeds environmental requirements. Very much a green mine. Main power supply is hydroelectric. We've got multiple climate change projects underway with a goal and target planned to be announced prior to the next AGM. So looking at our strategy. Stage 2, expansion of 400,000 tonnes per annum. We've achieved Stage 2a expansion to 500,000 tonnes per annum currently underway. This is a low-cost expansion around $2.5 million for the plant and then accelerating some of our capital equipment, which we'll be using for Stage 3. Stage 3. Expansion is now going to 1.2 million tonnes per annum. The original PEA was 1 million tonnes per annum. Initial CapEx was projected at $125 million, and a further $115 million in sustaining capital. So total capital for the project over the development phase is $240 million, with a projected after-tax NPV of $1.5 billion at $1,500 an ounce gold and $3 copper. We commenced the twin incline for this project in the first quarter of 2020. We updated the resource of Kora in the first quarter of this year as well as provided a maiden resource for Judd. DFS is nearing completion, and we expect to have results in that in another month with commissioning around mid-2024. If you look at our operational performance, you can see that since we declared production in the first quarter of 2018, we basically tripled our production from 10,000 to around 30,000 ounces a quarter. In terms of our resource reconciliation, you can see that almost every single quarter, we've actually produced more ounces than our model predicts. So that gives us a lot of confidence in our model that we can rely on it for our planning, and obviously, for our studies. In terms of our execution, you can see that mill throughput has increased almost fourfold since 2019 first quarter. In terms of total material mined, it's tripled. And in terms of our net cash, we're up to around $80 million, and we had $6 million at the end of the first quarter of 2019. So we have now got a very, very strong balance sheet with no debt, no royalties apart from government royalty and $80 million in cash. So looking at our Stage 2a expansion. Basically, we've already installed the filter press. We have installed, as you can see on the photograph on the right, the second TC1000 and commissioning is underway. We've got the main other item that we've got in the plant side is additional float sales and they're due in the second half of this year. And in the underground, we've had some equipment to arrive. At the first half of the year, we've got additional equipment arriving in the second half of the year, which will allow us to ramp up to our target of 1,370 tonnes per day. And I would note that the record throughput for the plant is in excess of 1,370. So we have achieved more than that already through the plant even though we haven't yet completed all of the installation of equipment. Looking at the geology. We go back to May 2017 when we drilled what we call our Kora North Discovery Hole, which is KNDD0009, where we got 5.4 meters at 11.7 grams per tonne gold, 25 silver and 1.3% copper. That was really the start of the Kora mine. And that discovery was recognized by PDAC in 2021, where we were the recipient of the Thayer Lindsley award for the Best Global Discovery 2021. Fast forward to first quarter of 2022, and we now expanded the Kora resource to cover an area of approximately 1,000 meters by 1,000 meters. We've mined about 400,000 ounces already from Kora, and we have a current resource of 2.1 million ounces, I've mentioned and indicated in 2.5 million of inferred. And we've now started also to define Judd, where we've got 130,000 ounces of measured and indicated 180,000 ounces of inferred. I'd note that both of these resources are limited simply by the amount of drilling. Both Judd and Kora remain open at depth. They remain open to the south. Judd remains open, going up towards the surface as well and also to the north. So now we have 3 parallel veins, 2 in Kora, 1 in Judd with all of our developments sitting in between of that. So all of the development that we're currently doing and have been doing to open up Kora is also opening up Judd. So a lot of benefits to the Judd system being a parallel system to Kora. In terms of the independent resource estimate, as I said, measured and indicated 2.1 million, 9.2 grams per tonne. Inferred 2.5 million at 9.5. And then Judd, 130,000 at 11, and the measurement and indicated 180,000 at 5.6 in inferred. When we look at our overall resource, 5.5 million ounces at 9.5 grams per tonne, with a 1.75 gram per tonne cutoff. That is the third highest for any listed company underground resource of more than 5 million ounces in the world, even though we actually operate at the lowest cutoff grade. In terms of Stage 3, and this was the PEA, which obviously is somewhat dated and that was done 2 years ago, but it really showed us a very robust project capable of producing 300,000 ounces a year with an all-in sustaining cost goal of sub-400 and all-in sustaining gold equivalent of sub $600 an ounce, very low CapEx, $125 million, expansion capital as well as $115 million sustaining capital, so total capital during the development of $240 million. So in terms of development of Stage 3, we have already committed to the development of the twin incline. So we're developing a twin incline of almost 3 kilometers. As of the end of May 2022, we're over 1,200 meters in on each of the 2 twin inclines, and that's a 5 by 5.5 and a 6 by 6.5. That twin incline comes in about 300 meters below the current incline. So it comes in shallower, but it is still an incline, and comes in towards the bottom of the known deposit. And as we develop along that twin incline, we've just set up our first drill cuddy down there, so we'll be drilling and looking to extend the resource at depth from that twin incline as we develop along. I would note that twin incline has a capacity of up to and potentially beyond 5 million tonnes per annum, although our Stage 3 is only at 1.2 million tonnes per annum. So it is designed to allow for further expansions should we be successful in our exploration activities and expanding the resource. Importantly, when you look at this, it's a very unusual underground mine in its underground that you go up into. And that, of course, provides us with a lot of efficiencies in terms of gravity basically bringing material down to our tramming level, and then we tram it out along the twin incline. As I mentioned, multiple high-priority near-mine targets. The plan that you can see here shows some of the output from the aerial geophysics program, which we flew in late last year, in November, December last year. And that aero-geophysics program was the largest program that's been flown in Papua New Guinea for something like 15 or 20 years and also the most advanced that's ever been flown. This is highlighted non-vein systems, non-targets as well as generating multiple new targets. So when we look at our near mine targets, Kora Deeps, as I mentioned, Kora is still open at depth, still hasn't been totally closed out to the north. And so we're drilling some of that right now. Kora South, Judd South, so that is going to the south of our current mining lease. And currently, we have 3 or 4 rigs that are actually drilling to the south looking to extend the resource up to a kilometer along strike. We've reported the first hole there, and I'll talk about those briefly. Judd, we're also expanding within the mining lease. And then we also have Karempe, which is on the edge of our mining lease as well as Maniape and Arakompa, which are off to the Northeast, which combined have a historical resource of about 1.4 million ounces, which has never been mined and haven't been drilled for 20 years. So that's a target for us going forward. In terms of Judd and Judd South, we've drilled 2 holes -- or reported 2 holes to date to the South, both of which have hit not only the J1 vein, but also additional -- at least one additional vein of J2, and I'll look at that in a little bit more in detail. In terms of Kora, we've drilled one hole so far, reported one hole so far of Kora South. And there, again, we've shown the K1 and K2 veins continuing as well as identifying a third vein. So looking at the 2 drill holes that we've reported to date, the first hole, we intersected the Judd system. It did not go down to the Kora system as the hole was terminated early due to a partial collapse. Judd, however, we encountered J1 and the J2, 2.9 meters at 8.5 grams per tonne in J2. And remember that within the mining lease, we only have a resource in J1. We don't have a J2. And then in J1, 15 meters at 15.7 grams per tonne, way above the average that we see for Judd. And importantly, a dilatant zone of over 66 meters at 5 grams per tonne, which incorporated J1, J2 and material further up the hole. So a really exciting first hole for us. And also, we intersected about 75 meters to the east, a previously unknown vein, 3.45 meters at 10 grams per tonne. The second hole that we drilled, we went through J1, J2, 1.3 meters at 16, 0.9 meters at 15 in J1, both of those commercial grade and thickness. Coming into Kora, we intersected K1, 0.9 over 36 grams per tonne; K2, 6.2 at 17; and a K3, 5 meters at 8 grams per tonne, and the hole actually finished in mineralization. Again, a dilatant zone, almost 36 meters at 6 grams per tonne. So these are the first 2 holes drilled to the south, and both obviously extremely exciting from our perspective. In terms of that airborne geophysics, as I mentioned, it really highlighted a number of non-deposits as well as identifying new potential areas. This plan is a small subsection of what was flown. We flew the entire 830 square kilometers of our mine lease and exploration license. This is only showing part of it. And this particular shows our connectivity. And you can see high conductivity is highlighting where we're seeing the high-grade veins. So you can see Kora, Judd to the Northwest and Arakompa, Maniape highlighted to the Northeast. Coming together, there appears to be a source where all of this comes together, and that is where we have our interpreted A1 porphyry, which is obviously a major target for us and something that we'll be drilling hopefully in the near future, end of this year, beginning of next year. Importantly, also identified a very high conductivity zone going off to the Southeast that was not previously identified, and that is obviously one of our important targets going forward. So the airborne geophysics has really identified multiple new targets. And as our VP of Exploration has said, he's got enough to keep him busy for the next 15 years. Looking at the wider exploration areas, our leases. And you can see that we have multiple targets, both in the epithermal vein systems, as well as porphyry. And so we are, as I mentioned, the largest explorer in the country, and we intend to continue with our exploration programs going forward as well as, obviously, the expansion of the main mine. And so I think we have an excellent future going forward. So thank you for that.

Ladies and gentlemen, thank you for attending today's meeting. You may now disconnect.