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

Ladies and gentlemen, welcome to the Annual General and Special Meeting of K92 Mining Inc. I would like to introduce Anne Giardini, Chair of the company. Ms. Giardini, the floor is yours.

Good afternoon. It is now at 12:00 noon the scheduled start time of the meeting. My name is Anne Giardini, Chair 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 visit meeting platform, accessible to all the 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 hold shares in their name. As of May 22, 2024, 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 David Medilek, K92's President will give a presentation and will answer any questions you may have. I will now commence the formal business of the meeting. On June 6, 2024, 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 of business on May 22, 2024. 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 with the records of the meeting. As such, proper notice of the 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 the meeting are: to receive the audited financial statements of the company for the year ended December 31, 2023, to fix the number of directors at 7, to elect 7 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 amendments to the share compensation plan and approve all unallocated entitlements under the share compensation plan; and 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 vote by 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 to wait until the conclusion of discussion on each resolution prior to casting your vote. Registered shareholders and their duly appointed proxy holders who attend the meeting virtually will have the ability to vote at the meeting if they've 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 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 like text for each resolution in turn. [Operator Instructions]. Once discussion on all items of business has concluded, I will give you a minute to enter your 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 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 of the resolutions. I have been 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 will be filed with the minutes of this meeting. The notice of the meeting haven't 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. The last meeting of shareholders was held on June 29, 2023. I confirm the minutes from the 2023 Annual General Meeting reflect a true record of the proceedings. The minutes of that meeting are available for review by any shareholder. Unless anyone wants 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. I will turn to the annual financial statement. The initial item of business is consideration of the audited financial statements of the company and the report of the auditor. It's customary to have the meeting acknowledged receipt of the financial statements. A copy of the financial statements and the auditor's report for the year ended December 31, 2023, is available on the company's website and the SEDAR website as well by request of the company, should any shareholder wish to see them. Therefore, the audited financial statements of the company for the year ended December 31, 2023, 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. The next item is the 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 vote on item 1 by hitting the voting button before we move on to item 2. Please vote now. [Voting]

The second item of business is the election of directors of the company. Directors elected at this meeting will hold off 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 General 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? Seeing no further nominations, I move that the nominations be closed. Are there any questions on this motion? As 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 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 off us until the next Annual General Meeting of the company, subject to the articles of the company and Business Corporations Act of British Columbia. The third item of business is the appointment of the auditor of the company for the ensuing year and the 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? Seeing no questions, please cast your votes on item 3 before we move on to item 4. Please vote now. [Voting]

The fourth item of business is to approve by an ordinary resolution of shareholders, the adoption of the amended share compensation plan and approval of all unallocated entitlements under the amended share compensation plan as described in the management information circular mailed to shareholders for the meeting. All shareholders of the company are entitled to vote on this resolution. The text of the resolution to approve the amended share compensation plan and unallocated entitlements 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 a reading of it, I will not repeat at this meeting. Is there any discussion? Seeing no discussion, please cast your votes on item 4. Please vote now. [Voting]

The fifth item of business is to approve an advisory resolution on the company's approach to executive compensation as particularly set out in the company's management information circular for the meeting. The text of the resolution is to approve the company's approach to executive compensation and is set out on Page 23 of the management information circular. I now move that the nonbinding advisory resolution on executive compensation set out on Page 23 of the information circular be approved, which unless a shareholder present desires a reading of it, I will not repeat. Is there any discussion? Seeing no discussion or questions, please cast your votes on item 5. Please vote now. [Voting]

Thank you for your questions and comments. For those of you who have not voted on all of these 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 that the scrutineers 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 their preliminary report of the results of voting at today's meeting. On the matter of setting the direct -- 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 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 of the nominees being Mark Eaton, Anne E. Giardini, Saurabh Handa, Cyndi Laval, Nan Lee, John D. Lewins and Graham Wheelock. Therefore, I declare that this motion is carried. On the matter of appointment of auditors, I am 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. 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 shortly. We've 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, but I would now like to introduce you to John Lewins, CEO of K92, who will now give a corporate update presentation. Following this, John will be available to answer any questions you may have. [Operator Instructions]. John?

Thank you, Chair, and welcome, everyone. So K92 Mining growing production transformative discoveries. We start, as always, with our forward-looking and cautionary statements which I will give you some time to review. Now that we've reviewed that, let's move on. We'll start with safety, which is clearly one of our greatest focus as a company. Over the last 5, 6 years, as you can see there, the safety performance of the company has been better than that of the average of West Australian gold miners. And that reflects the focus that we take in this. I would note that for the last 365 days, we've actually been lost time injury free. So hence, 2024, we're actually -- we have a lost time injury frequency rate currently at 0. Why do we see K92 Mining as a unique opportunity? Firstly, rapid fully funded production growth. We completed Stage 2 expansion in late -- in the third quarter of 2021, and that took us to a capacity of 400,000 tonnes per annum. We then undertook a Stage 2a expansion which took us to 500,000 tonnes per annum, and that was completed in May 2023. We have now committed to the Stage 3 expansion which will take us to 1.2 million tonnes per annum and an average production of 291,000 ounces gold equivalent. And following that, the Stage 4 expansion which takes us to a run rate of 1.7 million tonnes per annum, producing 470,000 ounces gold equivalent at the peak of 0.5 million ounces. We've been able to do that on the back of significant resource growth. We've increased our measures as indicated by over 1,100%. And are inferred by 781% between 2017 and the fourth quarter of 2023. And that is primarily extensive near resource growth expanding the potential strike and depth plus a nearby high-priority event and, of course, our porphyry target. And currently, we are running 11 rigs, 6 underground, 5 on the surface. So we have very much a large high-grade Tier 1 asset resource. High-grade leads to low-cost underground production. And in our case, we've been operating at around 11 grams per tonne gold equivalent since we started commercial production. We have given guidance for 2024 of our all-in sustaining cost being in the order of $1,440 to $1,540. This is actually the highest that we've seen for the operation and reflects the inputs that we're putting into the expansion for Stage 3 and 4, accelerating our operating development and building up our operational capacity. We have a large land bankage, over 800 square kilometers, highly prospective for both vein and porphyry targets and as noted above, we got really underway on multiple targets. And that's all driven by an experienced team with a proven track record. Let me look at our resource, [indiscernible] for resources of greater than 5 million ounces. We have one of the highest grade in the world. About the 6th highest grade deposit of greater than 5 million ounces in the world today held by a listed company. In terms of our corporate structure, 235 million shares currently on issue, fully diluted 246 million. We are covered, as you will see, by quite a number of analysts. In fact, most analysts of any company in our sector. In terms of our shareholder base, it is strongly North American. Institutional shareholders make up almost 60% of our shareholders. We do also have institutional shareholdings in Europe, London, Australia and Asia. In terms of sustainability, you'd see from our 2023 ESG report, which is available online, 94% of our workforce is PNG nationals. We spent USD 105 million on procurement from PNG companies in 2023. So 56% of our procurement is local. We paid $26.8 million in taxes and royalties during the year. $6.6 million tax credit scheme project was launched during the year and that will be on the [ sealing ] of a road, which we announced to launch just over a month ago. We have a large focus on local skills development with multiple MOAs signed with tertiary institutions and 43 tertiary scholarships awarded during the year. We set a target of 25% reduction in GHG emissions by 2030. In 2023, we were also the recipient of the outstanding community humanitarian initiative, which was a recognition of our K92's women in mining program at the 2023 Papua New Guinea Resources and Energy Investment Conference. We look at our operational performance, since we started commercial production in the first quarter of 2018. You'll see that we've had a ramp-up in terms of our throughput, ramp-up in terms of our ounces produced. And the fourth quarter in 2023, in fact, was a record of 39,000 ounces produced. And that reflects, obviously, the major investments that we've made in expanding the operation, both in the processing and also in underground. As you'd expect, you can see that our total ore process, total development meters and total mined material has been showing an upward trend with total development meters having increased from 500 -- just under 500 meters in the first quarter of 2019 to 2,650 for the fourth quarter of last year. In terms of the process plant, the Stage 2A expansion is looking at a run rate of approximately 1,370 tonnes per day. The best that we've actually achieved, a 7-day record was achieved in January was 2,149. That's an annualized throughput of approximately 780,000 tonnes per annum. So we've significantly exceeded the design. We currently operate at approximately 600,000 tonnes per annum. In terms of our exploration, as you can see, we've delivered a significant increase between 2022, the first quarter and our recent update in the fourth quarter of 2023. In terms of our measured and indicated at Kora and Judd. We had an increase of 600,000 ounces at 13.3 grams per tonne. During that period, we processed -- produced approximately 300,000 ounces at 10.2 grams per tonne, which saw the overall resource increase from 2.3 million ounces at 9.3 grams per tonne to 2.6 million ounces at 10 grams per tonne in our measured and indicated. Inferred, we saw a very significant increase of 1.9 million ounces at 7.8 grams per tonne. We increased our inferred from 2.6 million ounces at 9.1 grams per tonne to 4.5 million ounces at 8.5 grams per tonne. Overall, that gave us an increase of 2.5 million ounces at 8.7 grams per tonne. And as noted, during that time, we also produced 300,000 ounces from -- at 9.2 grams per tonne. So the overall resource increasing to 7.4. As we mentioned, the company has been very much about systematically executing and delivering on expansions with our aim to become a Tier 1 mid-tier producer. As I mentioned, fourth quarter, we commissioned stage 2 to 400,000 tonnes per annum in 2020, second quarter '23 up to 500,000 tonnes per annum, currently operating at 600,000 tonnes per annum and committed to our Stage 3, 1.2 million tonne per annum project, delivering 300,000 ounces per annum and commissioning due to start late April in 2025. And then we're targeting our Stage 4 expansion in late '26, early '27. I'd note the Stage 3 and Stage 4 expansions are fully funded with cash on the balance sheet and a debt facility that we recently announced. In terms of the Stage 3 expansion for the process plant, that is a brand-new process plant that we're building. That contract was awarded to GR Engineering Services. It is a lump sum fixed price contract. Total cost of the plant, including long lead items is approximately $100 million or just under 50% of our total expansion capital. We updated the capital cost of that earlier this year. It's now forecast to come in at USD 210 million. That's a 12% increase from the estimate from the study, which was $187 million. And note, that's over a 2-year period. So it's about a 6% per annum increase. You can see from the -- this is a photograph from the drone. GR Engineering have now mobilized to site. Construction is underway which involves the throwing of concrete. So the civils are very much underway. All of the earthworks were completed by K92 Mining prior to handing over the site to GR Engineering Services. Second, cost item in terms of the expansion is a paste fill plant, approximately $50 million. We've started ordering the long-lead items for this. We've completed the front-end engineering and design. And we will be shortly placing the order or the contract for the construction of this facility. In terms of the underground, there's a focus very much on the near-term transformation which is underway with major infrastructure upgrades. The twin incline reached its final design 2.9 kilometers. That's a 5 by a 5.5 and a 6 by 6.5, has a capacity of in excess of 5 million tonnes per ounce, well in excess of Stage 3 and Stage 4. The ore pass system, we've completed the first pilot hole for our first raise. That raise should start within the next week. And we will then be continuing to put in additional raises for both ore and waste passes as well as ventilation. In terms of the life of mine ventilation, that is a Puma vent incline that is well progressed. It's more than halfway completed. It's due to be completed in terms of breaking out at fourth quarter of this year and will be fully operational by the first quarter of 2025, and that provides us life of mine ventilation for the project. Fourthly is obviously the paste fill system. We are targeting to bring that online or start commissioning that in the third quarter of 2025 after we've finished the commissioning of the new process plant. That paste fill system is designed for Stage 3 and Stage 4. In terms of the impact of the twin incline, you can see here on the left, a photograph of the existing incline, which is used to transport our ore and waste. So 4 by 4.5. We operate 40 to 45-ton trucks in that incline going at approximately 8 kilometers an hour due to, obviously, its size and restrictions. When you look at the new development that we've done on the right, and that's the 6 by 6.5 meters. As you can see, it is a dramatically different facility. We can move trucks at a 50% larger, and they can move at 40 kilometers an hour. So it's a dramatic transformation of our ability to move material. In terms of the ore pass system and ventilation system, this is the raise bore rig, 1 of 2 that we have. This is the larger one. This is currently underground, as I mentioned, having completed its pilot hole. The company actually purchased this rig, and we use contractors to operate it. Pilot hole progress was actually more rapid than we laid in the budget. So we are pleased with the progress that we've made there. And in terms of mine transformation, we currently operate on 1 mining front in both Kora and Judd, we're actually mining 3 veins basically going upwards from the 1,200 with the twin incline having come in. We've actually taken our first ore out from where the twin incline is. And we've just taken the down ramp to the 1070 level, which will allow us to open up a mining front on the 1070 level from the -- going bottom-up. And then with the commissioning of the paste fill, we'll be able to increase our mining fronts further because currently, we all need to bottom up because we backfill our stops with waste rock. Once we start using paste fill, we'll be able to go top down as well as bottom up and make the point with paste fill as well, but 60% of our tailings will be going back underground. So that actually means that our tailings [ stem ] will be 60% smaller than it would be if we did not have paste fill. Looking at our exploration, we've got multiple high-priority targets which are near mine. Kora and Kora Deeps. So Kora within the mining lease and Kora within the mining lease going below the twin incline. Kora South and Judd South. So again, vein system, high-grade veins looking at both Kora and Judd going to the south. We currently have a rig operating. Judd, Judd Deeps, that's subparallel to Kora and being drilled from underground, Karempe vein, which is approximately 400 meters to 450 meters to the west of Kora. So we've actually got a program of drilling from underground plan for later this year. Maniape and Arakompa, where actually Arakompa at this point in time is our major focus on the surface. We have 3 rigs operating there. It's a 1.7 kilometer strike length with a historical -- significant historical resource of almost 800,000 ounces and 9 grams per tonne. Maniape, approximately 1 kilometer away from it. We have plans to start drilling there next year. And then the A1 porphyry, we currently have 1 rig operating there, and we are drilling our last hole in the current program, which will then undertake a significant review prior to commencing our second program of drilling there. In terms of Kora. Kora South, Kora Deeps, this long section, you can see how we've expanded that resource from our initial findings. We've got significant drilling, which has now extended the resource outside of the existing envelope. Kora Deeps we will be looking to drill from the twin incline probably next year. Judd. Judd South and Judd Deeps. As you can see, very much underexplored. We have, again, had significant intersections outside of the resource envelope and we'll continue to expand this resource. In terms of our Arakompa and Maniape, Arakompa, as you can see, is only 4.5 kilometers from the process plant. It's actually closer to the process plant at Kora and Judd are. It's only about 5 kilometers away from Kora, Judd. So this is very proximal to our infrastructure. Maniape is only about a kilometer further away from there. And we look at Arakompa, we've reported 11 holes at Arakompa and that is the first drilling that's been done on this project in 32 years. What our drilling has shown is that it is indeed a high-grade vein system. The previous work that was done really identified 1 high-grade vein. We've intersected up to 3 or 4 high-grade veins, KR-DD0002, for instance, recorded 7.2 meters at 24.76 grams per tonne, plus 5.7%, at almost 10 grams per tonne plus 5.3% at 6 grams per tonne. So it's showing high-grade vein systems with continuity, Almost every hole has hit at least on high-grade vein system. So a lot of similarities to Kora and Judd. However, unlike Kora and Judd, it also appears that there is a significant bulk tonnage potential with significant disseminated mineralization outside of the high-grade vein systems. And again, looking at KR-DD0002. We reported 220 meters at 1.59 grams per tonne from surface with multiple other holes also reporting such as KR-DD0006, 94, at 4 meters at 3 grams per tonne. So we have a high-grade vein system and we also have a bulk tonnage potential here as well from surface. Looking at the long section and the cross-section here. You can see there are a lot of similarities to Kora and Judd. We are basically, again, in a mountain with the potential to come in from the valley and mine up into it as an underground plus the potential perhaps longer term to look at open pit. It is open in every direction. 1.7 kilometers of strike length has been met, from surface mapping, also from looking at surface workings and of course, the drilling that we've done to date. We have a program of approximately 20,000 meters of drilling this year with a fourth rig due to start in the next quarter and a plan to produce the first resource for Arakompa first quarter of 2025. As you can see from this photograph, we are drilling into the side of the mountain. And you can see the Kainantu Gold process plant and accommodation facility is just over 4 kilometers away down the valley. In terms of being able to transport material from this area down to the plant, that's actually easier than the current route that we have for Kora and Judd. This certainly has a great potential to be brought into production should the resource warrant relatively quickly and low cost. And just in closing, exploration targets that we have, that are advanced, as you can see, we've got over a dozen porphyries, 2 of which we've now done drilling programs on 2 of which we've carried out extensive surface sampling programs, which have identified drill targets in Yonki and [indiscernible]. And in the high-grade vein systems, again, almost a dozen targets. And we are busy drilling Kora, Kora South, Judd, Judd South, Karempe about to start Arakompa, drilling now the 3 rigs, Maniape has been drilled and will be drilled again next year. And then we've got Mati and the [indiscernible], which are proximal to Maniape and Arakompa have never been drilled, have been surface samples show a lot of similarities to the other high-grade vein systems. So as a company, we are rapidly expanding, moving to 300,000 ounces a year production rates towards the end of next year and then 12 to 18 months later, moving up to 450,000, 470,000 ounces a year from existing resources. And we've also got extensive targets, which we believe will significantly expand our resource base in the coming years. So with that thank you, Chair. I will take any questions?

Thank you. David Medilek will advise if there are any questions that have come in. As seeing none. John, thank you for your presentation. Looking forward to an exciting year ahead. I thank all of our guests and others for attending the 2024 AGM of K92 Mining. The meeting is now terminated.

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