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 Anne Giardini, Chair of the company. Ms. Giardini, the floor is yours.

Good afternoon. It is now 2:00 p.m., the scheduled start time of the meeting. My name is Anne Giardini, Chair of the Board of K92 Mining Inc., and I will chair the business of today's meeting. I welcome you to the company's Annual General and Special Meeting of Shareholders. We are pleased to host the meeting through this virtual meeting platform accessible to all 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 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 19, 2023, the record date of this meeting, or their validly appointed proxyholders are entitled to vote at this meeting. To expedite the meeting, we will deal first with the formal business of the meeting, and then David Medilek, K92's President, will give a presentation, and we'll answer any questions that you may have. I will now commence the formal business of the meeting. On June 6, 2023, 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 of the shareholders of record as of the close of business on May 19, 2023. 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 Meeting as read. The declaration as to mailing will be filed with the minutes of this meeting to be retained by the secretary of the records of the meeting. As such, proper notice of this meeting has been given. If you voted prior to the meeting by proxy, you do not need to cast your vote at this meeting, unless you wish to change your vote. As specified in the Notice of the Meeting, the items of business for this meeting are: first, to receive the audited financial statements of the company for the year ended December 31, 2022; second, to fix the number of directors at 7; third, to elect 7 directors for the ensuing year; fourth, to appoint the auditor for the ensuing year and to authorize the directors to fix the auditor's remuneration; fifth, to approve amendments to the share compensation plan; and sixth, to approve a nonbinding advisory resolution accepting the company's approach to executive compensation. 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 on each of the matters by a poll. On a poll, every shareholder entitled to vote on the matter has 1 vote in respect of each share entitled to be voted on the matter and held by that shareholder. The poll will be opened 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 discussion on each resolution prior to casting your vote. Registered shareholders and their duly appointed proxyholders who attend the meeting virtually 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 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've already submitted your votes by proxy and do not wish to change your votes, 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 has concluded, I will give you a minute to enter your votes online, and then I will 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 is 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 am advised by our scrutineer that there is a quorum present, being 2 persons present or represented by proxy who, in the aggregate, hold at least 25% of the issued shares of the company. I direct that the final report of the scrutineer be filed with the minutes of this meeting. The notice of 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 June 30, 2022. I confirm the minutes from the 2022 Annual General Meeting reflect 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 will dispense with the reading of the minutes of the last Annual General Meeting and the minutes will 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, 2022, is available on the company's website and SEDAR website as well as by request to the company, should any shareholder wish to see them. Therefore, the audited financial statements of the company for the year ended December 31, 2022, and the auditor's report on those statements will be acknowledged as having been received. Is there any discussion? Hearing no discussion, I acknowledge the financial statements as having been received. Number of directors. The first item of business is the approval of an ordinary resolution setting the number of directors of the company at 7 for the forthcoming year. I move that the number of Directors for the ensuing year be fixed at 7. 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. Please 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 or the Business Corporations Act, British Columbia. Each of Mark Eaton, Anne E. Giardini, Saurabh Handa, Cyndi Laval, Nan Lee, John D. Lewins and Graham Wheelock have informed the company that they will stand for election at this meeting, and they 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 meeting of the company or until their successors are duly elected or appointed, subject to the provisions of the company's articles: John D. Lewins, Mark Eaton, Anne E. Giardini Saurabh Handa, Cyndi Laval, Nan Lee and Graham Wheelock. Are there any nominations for other directors? As there are no further nominations, I move that the 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 on to item 3. Please vote now. [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. Appointment of auditor. The third item of business is the appointment of the auditor of the company for the ensuing year and authorization of the company's directors 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 that 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]

Approval of amended share compensation plan resolution. The fourth item of business is to approve by an ordinary resolution of disinterested shareholders the adoption of the amended share compensation plan, as described in the Management Information Circular mailed to shareholders for the meeting. An aggregate of 4,377,555 votes attached to the shares held by directors and officers of the company and associates of such persons will be excluded from voting on the amended share compensation plan resolution. All other shareholders of the company are entitled to vote on this resolution. The text of the resolution to approve the share compensation plan is set out on Page 21 of the Management Information Circular. I now move that the resolution set out on Page 21 of the Information Circular to adopt the amended share compensation plan be approved, which, unless a shareholder present desires the reading of it, I will not repeat. Is there any discussion? If there are no further questions, please cast your votes on item 4. Please vote now. [Voting]

The next item is approval of advisory resolution on executive compensation. The fifth item of business is to approve an advisory resolution of the company's approach to executive compensation as more particularly set out in the company's Management Information Circular for the meeting. The text of the resolution to approve the company's approach to executive compensation is set out on Page 22 of the Management Information Circular. I now move that the nonbinding advisory resolution on executive compensation set out on Page 22 of the Information Circular be approved, which, unless a shareholder present desires a reading of it, I will not repeat. Is there any discussion? If there are no further questions, please cast your vote on Item 5. Please vote now. [Voting]

Thank you. For those of you who have not voted on all the 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 the polls are now closed, and I ask that the scrutineer 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 have been carried. The scrutineer has provided their preliminary report of the results of voting at today's meeting. On the matter of setting the number of directors, I am 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 7. Therefore, I declare that this motion is carried. On the matter of election of directors, I am advised by the scrutineer that greater than a majority of the votes cast have been voted in favor of election of all the nominees, being Mark Eaton, Anne E. Giardini, Saurabh Handa, Cyndi Laval, Nan Lee, John D. Lewins and Graham Wheelock. Therefore, I declare this motion is carried. On the matter of appointment of auditors, I am advised by the scrutineer that greater than a majority of the votes cast have been voted in favor of the appointment of PricewaterhouseCoopers LLP, Chartered Professional Accountants. Therefore, I declare that this motion is carried. On the matter of approval of the amended share compensation plan resolution, I am advised by the scrutineer that greater than a majority of the votes cast by disinterested shareholders have been voted in favor of the share compensation plan resolution. Therefore, I declare that this motion is carried. On the matter of approval of the advisory resolution on executive compensation, I am advised by the scrutineer that greater than a majority of the votes cast have been voted in favor of the advisory resolution. Therefore, I declare that this motion is carried. A news release disclosing the voting results will be issued and filed online, on the SEDAR website and will be available on our website in due course. We have now concluded the formal business of the meeting. Is there any other business that anyone in attendance 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 is concluded. This concludes the formal part of the meeting. I would like to introduce to you David Medilek, President of K92, who will now give a corporate update presentation. Following this, he is available to answer any questions you may have. You may submit questions through the Ask a Question icon box that appears on your screen. David?

Thank you, Anne, and thank you, everyone, for joining us for our Annual General Meeting presentation. I just want to confirm with the moderator that my screen share is successful. As always, we ask that you refer to our forward-looking and cautionary statements as shown, which can be found on our website in our latest corporate presentation. We begin with safety. It is our greatest focus. K92, since restarting operations, has operated with one of the best safety records in the Australasia region. It is with tremendous regret to have reported fatalities recently at our operations corridor. We pledge to fully understand all root causes and continue our journey to zero harm for our workforce. And to the family, friends and coworkers of our colleagues, we extend our condolences, thoughts and prayers. On Slide 4, we provide an overview of the unique investment opportunity that is K92. The company has achieved, and is continuing to achieve, a path of rapid, self-funded growth and value creation. In May 2017, we made a near-mine infrastructure discovery at Kora North. We began rapidly mining this discovery, taking the cash flow to invest in expansions and exploration. The top right chart shows the production growth we have achieved to date and the major growth we are undertaking with the Stage 3 and 4 expansions. The bottom right chart shows the significant growth we have achieved in terms of resource at both our vein field and porphyry exploration. The vein system we mine is high grade, is thick and is effectively mined and processed, making Kainantu a low-cost producer operating in one of the higher grades in the mining industry. We also hold a large 830-square kilometer land package. Papua New Guinea is known for its phenomenal geology with several world-class deposits, and we see the potential for additional elephant systems on our property. The team at K92 is experienced with a proven track record, including extensive experience in Papua New Guinea, where we have been operating for some time now. This slide presented has been provided to us by BMO. Looking at companies listed in North America, Australia and Europe with high-grade resources exceeding 5 million ounces of gold equivalent, the point I'd like to make is there are not many assets with this combined size and high grade. Most of these assets are owned by senior mining companies. And in short, Kainantu is a globally significant asset. And as we get into the exploration section of the presentation, you will see tremendous upside yet to be realized. On our corporate structure, K92 has a strong balance sheet, ending Q1 with $89 million of cash and no debt. We are covered by 15 analysts and have a very strong institutional share register. Recently, K92 was very pleased to announce our '23 greenhouse gas emissions reductions target to reduce our Scope 1 and Scope 2 emissions by 25% on a business-as-usual basis. K92 already is one of the lowest-emissions gold mines globally, and we are committed to further improving our energy and greenhouse gas emissions profile. We believe that we are well positioned with a clear pathway to achieve this target through enhancing our access to hydro power from the local grid, combined with other reduction measures. The image on the right is of the nearby Yonki hydroelectric dam reservoir. Importantly, we've already taken action to improve our greenhouse gas emissions profile with a dedicated power line completed from the Ramu substation to site this year. The [ plant ] was installed to increase reliability of hydroelectric power distribution so that we can reduce the usage of standby diesel gensets. Through our partnership with P&G Power, we are assessing further opportunities to maximize our utilization of clean hydropower. On ESG, K92 has a strong focus on the prosperity and development of Papua New Guinea and our host communities. We are proud to employ over 1,500 people with a major focus on local hiring. Approximately 95% of our workforce is from P&G and the majority from our local communities, with a big focus on training and development. Kainantu has a low environmental footprint with a traditional tailings impoundment, no cyanide and, as noted earlier, a low greenhouse gas emissions profile. We also focus on multiple long-term social and economic development initiatives in Papua New Guinea through joint ventures, education, infrastructure and services programs, agriculture programs and investing in female empowerment programs, among many others. K92 has been recognized by ISS as having peer-leading corporate governance. For more information, please consult our website. We currently have the 2021 Sustainability Report, and our 2022 Sustainability Report is planned to be published in the later part of July. The strategy for the Kainantu mine has been very much about expansion, expansion, more expansions. In Q4 of 2020, we commissioned our Stage 2 expansion to double throughput. In Q2 of 2023, we completed final commissioning of our Stage 2a expansion to increase input of further 25%, and we are now underway advancing to Stage 3 and 4 expansions, which we plan to be our most transformational to date, growing Kainantu into a Tier 1 producing asset, which I will get into later in the presentation. An important milestone for the company was achieved in December of 2022 with the mining minister signing the extension of the mining lease, extending it by 10 years from the renewal date to June 2034, with the Board of Directors of K92 also approving the Stage 3 and 4 expansions. The extension was announced well ahead of the renewal date, highlighting the strong relationship that K92 has with its various stakeholders. In terms of operating performance, Kainantu has progressively expanded the Kainantu gold mine. We met our production guidance in 2022 and delivered better-than-guidance cash cost and all-in sustaining costs. In Q1, as reported, our production was notably below budget as a result of challenging -- of a challenging stoping area due to localized geotech conditions and also 8 days in mill downtime. It is important to highlight that we reiterated guidance targeting the lower end of the guidance range, which, with significantly better performance expected in Q2, Q3 and Q4. Looking at operating physicals. Other than grade in Q1, the mine performed well, delivering near record mining and processing throughput plus a record development advance. We achieved this significant operational ramp-up during the COVID-19 pandemic, which is a testament to the strong capabilities of our team, a significant positive that has emerged as a strong performance of the process plant. In March 2023, we achieved an average throughput of 1,490 tonnes per day, exceeding the 1,370-tonne per day nameplate design for Stage 2 expansion. We also delivered multiple daily throughput records, including 1,815 tons processed on March 11. It is important to highlight that these records were achieved prior to the installation of the flotation cells for the Stage 2a expansion. As noted earlier, the commissioning for Stage 2a has been completed this quarter, and we look forward to continuing to discover the plant's ultimate potential in terms of throughput and also recovery. In September of 2022, we announced our integrated development plan, which included 2 separate cases, the Stage 3 DFS case and the Stage 4 PEA case. Both cases delivered strong economics with Tier 1 production and costs. The Stage 3 DFS case is based on increasing throughput from the current Stage 2a rate of 500,000-tonne per annum to 1.2 million tonnes per annum. It involves constructing a completely new 1.2 million-tonne per annum process plant next to the existing plant, with the existing process plant idled. This case achieved a run rate production of approximately 300,000 ounces gold equivalent per annum, at life-of-mine average co-product cost of $732 an ounce. The Stage 4 PEA case continues to ramp up throughput to 1.7 million tonnes per annum, achieved by restarting the idled 500,000-tonne per annum process plant, effectively running both plants concurrently. This case outlines a run rate of approximately 470,000 ounces of gold equivalent per annum at a life-of-mine average co-product cost of $687 ounces and a peak production year of 500,000 ounces gold equivalent. An important point to make is that the cases presented are on a resource that was announced in early 2022 with an effective date for Kora and Judd in Q4 of 2021. Since then, there has been a significant amount of drilling and focus on resource growth with the aim of not only extending the mine life, but also increasing our operational flexibility to ramp up. In terms of mine cash flow, plus our strong balance sheet, the project is fully funded until commissioning. The product is expected to generate a considerable amount of free cash flow. And importantly, the study was completed at a gold price of $1,600 an ounce. We are also working on securing non-dilutive debt to provide a liquidity buffer. In terms of product development, certain long lead time items have already been awarded, and we are in the final stages of the tender process for award of the various contracts and remaining long lead time items. We plan to press release our growth capital guidance once this is completed. I want to emphasize that the economic study, as many of you already know, is not multiyear guidance for the company. Firstly, it does not include the benefit of a considerable amount of drilling since the study was completed. And secondly, the outcome of the tender process, particularly the delivery of long lead time items, will be the key driver in terms of timing of the commissioning of Stage 3. Based on delivery times for long lead time items, we expect timing of Stage 3 commissioning to be moderately later than presented on the slide. As a producing company, this means that the product benefits through having more time to produce metal for funding and more mine development before commissioning to increase our operational flexibility. We look forward to announcing the outcomes of the tender process and growth capital guidance near term. I'm pleased to report that the development of the twin incline, one of our major long lead time items, is well advanced, with approximately 2.4 kilometers of the 2.9-kilometer design completed as at the end of May. The twin incline is sized to do up to 5 -- sorry, to do up to 5 million tonnes per annum with conveyors, which is multiples larger than the Stage 3 and 4 expansion. We did this because we simply do not know how big this system will be and how many stages of expansion are potentially in front of us. Based on what we have seen from exploration, we are very pleased that we oversized the twin incline. In terms of near-mine drilling, we are currently drilling the Kora, Kora Deeps, Kora South and Judd South targets from either underground or surface drilling or both. Targets such as Maniape, Arakompa and Karampe have very high potential and will be drilled in due course. Looking at the long section of the Kora, Kora's South vein system, there are 3 points that I'd like to make. Number one, there has been a significant amount of drilling outside of the resource since the last estimate, as shown with the various pierce points annotated, which now cover a known strike length of over 2.65 kilometers. Number two, drilling to the south has discovered dilatant zones, with 2 zones interpreted to date as annotated by the blue lines with double arrows, delivering record intersections at Kora, including 50 meters at 5.25-gram per tonne gold equivalent and notably 28 meters at 10.5-gram per tonne gold equivalent. These zones appear to have limited strike length, but significant potential critical extents. And number three, we see drilling from underground entering a very exciting phase with both Kora Deeps and Kora South now underway at depth, as highlighted in the 2 blue ellipses. These are high potential target areas. Now looking at the long section for the Judd, Judd South vein systems. There are 4 key points I'd like to make. Firstly, we have significantly expanded the coverage of drilling from the Judd resource, delivering a very strong hit rate and some very high-grade results. Secondly, Judd, like Kora, also has dilatant zones, with 2 zones interpreted to date as annotated. Thirdly, we recently announced the discovery of a high-grade zone to the south at a second vein at the Judd vein system, the J2 vein, recording 2.4 meters at 345-gram per tonne gold equivalent, with several proximal double-digit gold equivalent grade intersections also recorded. The J2 vein is not in the current resource and is a high-priority opportunity. And lastly, like Kora, we see an exciting period for underground drilling at both Judd Deeps and Kora South at depth. In terms of the dilatant zones, as noted earlier, they have been recorded at both Kora South and Judd South. There are 2 principal styles. The first style is having significant mineralization occurring between high-grade veins. And the second style is having a single vein significantly dilated. Our understanding of the dilatant zones continues to be enhanced with each intersection. And the zones have the potential to be endowment multipliers, with thicknesses significantly greater than the 3- to 6-meter thickness that is typical at Kora and Judd. In late 2021, we completed an advanced airborne geophysics program over the entirety of our property. The results outlined multiple high-grade vein and porphyry targets. On vein targets, the results outlined a high-connectivity zone continuing past the southeastern side of the A1 porphyry for several kilometers, which was previously unknown and never tested. This highlights the potential for the Kora, Kora South and Judd, Judd South vein systems to possibly extend well beyond our previously interpreted -- our previous interpretation to the southeast. On the porphyry targets, the geophysics highlight that A1 is a top porphyry target. Additionally, looking at the [ property ] as a whole, we see potentially 20 to 25 years' worth of drilling targets to find in front of us as a result of the geophysics. For our porphyries over the last few years, the focus has been on the Blue Lake porphyry, which was a discovery by K92. In August, we announced a maiden inferred resource for Blue Lake of 10.8 million ounces at 0.61-gram per tonne gold equivalent or 4.7 billion pounds of copper at 0.38% copper equivalent. This was achieved at a discovery cost of under $1 an ounce gold equivalent. The deposit has shown that grade tenor is increasing at depth, and potentially, we have yet to hit the high-grade potassic core. We plan to eventually target the down-dip extension of Blue Lake. An important point to make is, in Papua New Guinea, porphyries tend to cluster, and there are multiple targets near Blue Lake. From the geophysics, our #1 target is A1. A1 is believed to be the last -- sorry, A1 is believed to be the major heat source for the Kora and Judd vein systems, in addition to Maniape and Arakompa. A1 is also part of the same lithocap as Blue Lake and Ayena. And from the geophysics, we believe we could potentially be looking at a porphyry belt. Drilling at A1 commenced at the end of Q1, and we look forward to providing an update in due course. Thank you for attending our AGM presentation, and I will now turn it over for any questions. As there are no questions asked, this concludes the presentation. Thank you.

Thank you for attending the AGM of K92 Mining. This meeting is now terminated.

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