K92 Mining - Angehender Goldproduzent in PNG

K92 Mining loses $389,139 (U.S.) in Q3


2019-11-12 20:04 ET - News Release

Mr. John Lewins reports

K92 MINING INC. RELEASES 2019 Q3 FINANCIAL RESULTS

K92 Mining Inc. has released results from its financial statements for the three and nine months ended Sept. 30, 2019.

This third quarter of 2019 saw 32,094 tonnes processed, production of 19,170 oz AuEq from the Kora North deposit, with Cash Costs of US$602/gold oz, and AISC per ounce produced of US$709/gold oz. Revenue for the third quarter was US$20,989,036 with a gross margin of US$8,750,138 which excluded 4,277 ounces of gold that was held in inventory as at September 30, 2019 due to a breakdown of a crane that prevented the ounces to be transported for sale until October 2019.

For complete details, please refer to the consolidated interim financial statements and associated management's discussion and analysis, under the Company's profile on SEDAR (www.sedar.com). All amounts are in U.S. dollars unless otherwise indicated.

John Lewins, K92 Chief Executive Officer and Director, stated, "The Third Quarter saw a substantial strengthening of the financial and commercial position of the Company and the achievement of a number of major milestones.

During the quarter, the Company paid out all the outstanding gold ounces owed to Cartesian Royalty Holdings II ("CRH") and having previously paid US$3 million to extinguish the royalty held by CRH on Kora and Irumafimpa, now has no outstanding liabilities or obligations to CRH. In addition, the Company paid the sum of US$12.5 million to Barrick Gold Corporation ("Barrick") to eliminate the contingent payment of up to US$60 million payable under the original share sale agreement dated June 11, 2014, again leaving no outstanding liability or obligation to Barrick. As a result, as at September 30, 2019, the Company held just under US$18 million in cash, with the only material debt being a US$15 million secured facility with Trafigura Pte Ltd.

The Company celebrated 1,216 days with no Lost Time Injury ("LTI") at the end of the quarter, a very special and industry-leading achievement. At the same time, the progress on the Kainantu Mine Expansion Project has been very pleasing with a number of significant capital projects completed, including the incline bypass and debottlenecking, the first phase of the camp expansion and the installation of the gravity circuit in the plant which is currently being commissioned.

With production of just under 20,000 oz AuEq for the Third Quarter and just under 60,000 oz AuEq for the year-to-date and despite significant disruption associated with the expansion project, we have confirmed our conviction that we will achieve the top half of our updated AuEq production guidance, while delivering all-in sustaining costs at the bottom of or below our guidance."

MINE OPERATING ACTIVITIES

 
                                   Three months ended  September 30, 2019Nine months ended  September 30, 2019
Operating data                                                                                                          
Head grade (Au g/t)                          19.20                                 19.44                                
Gold Recovery (%)                            94.1%                                 93.7%                                
Gold ounces produced                         18,636                                56,741                              
Gold ounces equivalent produced (1)          19,170                                58,610                              
Pounds of copper produced                    209,287                               735,131                              
Silver ounces produced                       5,284                                 17,742                              
                                                                                                                       
                                                                                                                       
Financial data (in thousands of dollars)                                                                                
Gold ounces sold                             15,652                                52,893                              
Gold ounces produced                         18,636                                56,741                              
Revenues from gold sales                     US$20,989                             US$68,277                            
Mine operating expenses                      US$9,670                              US$28,184                            
Depreciation and depletion                   US$2,569                              US$5,886                            
                                                                                                                       
Statistics (in dollars)                                                                                                
Average realized selling price per ounce, netUS$1,341                              US$1,291                            
Cash cost per ounce (1) sold                 US$602                                US$507                              
All-in sustaining cost per ounce (1) sold    US$740                                US$650                              
All-in sustaining cost per ounce (1) producedUS$709                                US$638                              
Note:

(1)The Company provides some non-international financial reporting standard measures as supplementary information that management believes may be useful to investors to explain the Company's financial results. Please refer to non-IFRS financial performance measures of the Company's management's discussion and analysis dated November 12, 2019, available on SEDAR, for reconciliation of these measures.

K92 has not based its production decisions on mineral reserve estimates or feasibility studies, and historically such projects have increased uncertainty and risk of failure. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Review of financial results

Net income

The Company's net loss for the three months ended September 30, 2019, totalled US$389,139, or loss per share of US$0.002 compared with US$1,831,372 or US$0.01 per share for the three months ended September 30, 2018.

The loss was attributable to the full repayment of gold deliverable to CRH Funding II Pte Ltd during the quarter. K92 recorded its final amortization of deferred loss (see Note 10 to the financial statements) of $3,279,469 and its final fair value loss on the gold purchase agreement of $802,386.

In addition, 4,277 ounces of gold was held in inventory as at September 30, 2019 due to a breakdown of a crane that prevented the ounces being transported for sale until October 2019.

Operating Cash Flow

The Company's operating cash flow for the nine months ended September 30, 2019 totalled US$12,910,698 or US$0.06 per share compared with US$11,871,213 or US$0.07 per share for the nine months ended September 30, 2018. Operating cash flow before working capital adjustments for the nine months ended September 30, 2019 totalled US$31,652,183 or US$0.15 per share compared with US$11,352,456 or US$0.07 per share for the nine months ended September 30, 2018.

Qualified Person

K92 mine geology manager and mine exploration manager, Andrew Kohler, PGeo, a qualified person under the meaning of Canadian National Instrument 43-101 {&#A A ; –} Standards of Disclosure for Mineral Projects, has reviewed and is responsible for the technical content of this news release. Data verification by Mr. Kohler includes significant time onsite reviewing drill core, face sampling, underground workings, and discussing work programs and results with geology and mining personnel.

For further information regarding the Kainantu gold mine, please refer to the technical report dated January 8, 2019, and entitled, "Independent Technical Report, Mineral Resource Estimate Update and Preliminary Economic Assessment of Kora North and Kora Gold Deposits, Kainantu Project, Papua New Guinea," available on SEDAR.

About K92

K92 Mining Inc. is engaged in the production of gold, copper and silver from the Kora and Kora North deposits of the Kainantu Gold Mine in the Eastern Highlands province of Papua New Guinea, as well as exploration and development of mineral deposits in the immediate vicinity of the mine. The Company declared commercial production from Kainantu in February 2018 and has commenced an expansion of the mine. An updated Preliminary Economic Assessment on the property was published in January 2019. K92 is operated by a team of mining company professionals with extensive international mine-building and operational experience.

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During Q4, K92 produced 23,096 ounces of gold, 216,656 pounds of copper and 5,243 ounces of silver or 23,646 AuEq oz (based on a gold price of US$1,300/oz; silver price of US$16.50/oz; copper price of US$2.90/lb). Production for 2019 was a record of 79,838 oz of gold or 82,256 AuEq oz, compared to production of 47,237 oz AuEq for 2018. Production for 2019 exceeded the top end of upgraded production guidance of 72,000 to 80,000 AuEq oz, which was originally 68,000 to 75,000 AuEq oz (see August 15, 2019 press release – K92 Mining Inc. Releases 2019 Q2 Financial Results, Increases Production Guidance and Decreases 2019 Cost Guidance) by 2,256 AuEq oz.

Mining operations in Q4 continued to focus on Kora North and comprised cut and fill stope mining from the K1 vein at the 1170, 1205 and 1225 mRL level as well as development tonnes from the K2 vein on the 1225 mRL level.

The blend of primarily K1 material provided an average head grade to the process plant for Q4 of 25.22 g/t Au and 0.35% Cu. The gold head grade was above and the copper grade below the anticipated long-term average grades. The above average gold grades are the result of a combination of lower dilution being achieved in the stope and development mining combined with a higher proportion of K1 treated during the quarter, while the below budget copper grades are the result of treating a higher proportion of K1.

Importantly, the above budget production was achieved despite a number of interruptions to underground mine operations due to upgrading of underground infrastructure, including commissioning of the new underground power reticulation system and the new main ventilation fans. The plant was also impacted by stoppages to install the new larger secondary crusher as well as various other crusher upgrades.

Financial details will be available in the Company’s upcoming Annual Financial Statements. Annual production guidance for 2020 will be reported in the first half of Q1.

Table 1 – Q4 & 2019 and 2018 Annual Production Data

2018 Total Q1 2019 Q2 2019 Q3 2019 Q4 2019 2019
Tonnes Processed T 79,487 26,846 37,913 32,094 30,336 127,190
Feed Grade Au g/t 19.1 23.6 16.7 19.2 25.2 20.8
Feed Grade Cu % 0.38% 0.48% 0.34% 0.32% 0.35% 0.37%
Recovery (%) Au % 93.7% 93.7% 93.2% 94.1% 93.9% 93.7%
Recovery (%) Cu % 92.9% 93.9% 92.5% 92.1% 93.7% 92.8%
Metal in Conc Prod Au Oz 45,810 19,125 18,980 18,636 23,632 79,838
Metal in Conc Prod Cu T 277.27 120 119 95 98 432
Metal in Conc Prod Ag Oz 10,069 5,564 6,894 5,284 5,243 22,984
Gold Equivalent Production Oz 47,237 19,788 19,652 19,170 23,646 82,256
August 15, 2019 Upgraded Guidance 72-80,000
Original Guidance 68-75,000
Note - Gold equivalent for 2018 and 2019 based on the following metal prices: gold $1,300 per ounce; silver $16.50 per ounce; and copper $2.90 per pound.

John Lewins, K92 Chief Executive Officer and Director, stated, “The production results for the fourth quarter and the year have again exceeded expectations which is a testament to the quality of not only the Kora North deposit but also the entire team at Kainantu. This record production of 23,646 ozs AuEq was delivered during a quarter in which there were significant interruptions to underground operations resulting from the ongoing upgrading of key infrastructure as well as interruptions to plant operations associated with the installation of new equipment.

Importantly, underground development has significantly ramped up over the course of the year, with total tonnes mined, increasing from under 60,000 tonnes in Q1 to 120,000 tonnes in Q4. This increased development activity reflects the impact of additional equipment and personnel following the decision to go ahead with the expansion project during the first quarter of 2019. The initial focus of the expanded underground activity has been in waste development necessary to establish increased access to the deposit to allow the ramp up production to 400,000 tonnes per annum by the end of 2020.

In addition, the Company continued to work on the expansion of the Kora/Kora North Resource, with a further 26 holes completed during the quarter. Results reported included KMDD0147A which recorded one the highest grade drill intersections at Kora to date of 13 metres at 288.73 g/t Au, 104 g/t Ag and 0.77% Cu (291.34 g/t AuEq (calculated using copper price of US$2.90/lb, silver price of US$16.5/oz and gold price of US$1,300/oz).”

During Q1, the Company announced the commencement of the expansion of the Kainantu Gold Mine in Papua New Guinea, with a goal of doubling current capacity to 400,000 tonnes per annum and increasing annual production to an average of 120,000 AuEq oz.

Based on the preliminary economic assessment (“PEA”) published in January 2019, the major results from the decision to expand production include:

Total capital expenditure for 2019 is projected to be US$30 million, comprising US$12 million in expansion capital, US$8 million in sustaining capital and US$10 million in capital development;
Production was projected to be 68-75,000 oz AuEq in 2019 and is projected to be 115-125,000 oz AuEq in 2020;
Cash costs are expected to be between US$580 and US$620 per oz AuEq, and all in sustaining costs (“AISC”) are expected to be US$780 to US$820 per oz AuEq in 2019, dropping to cash costs below US$500 per oz AuEq and AISC below US$700 per oz AuEq in 2020;
Number of employees is expected to increase from the current 650 to 750 at the end of 2019, and to 800 by the end of 2020, with over 96% of all positions in-site being filled by PNG Nationals;
Based on the results of the PEA:
Total production over the next 13 years would be 1.33 million oz gold and 130 million lbs copper;
Total revenue for the period would be over US$2 billion;
Royalty payments for the period would be US$50 million;
Tax paid to PNG Government for the period, from payroll and corporate tax, would total US$300 million;
Total sustaining capital of US$202 million would be required over the 13-year period; and
Net cashflow would be US$1.03 billion, the net present value (“NPV5”) would be US$710 million pre-tax, or US$559 million after tax, and the internal rate of return (“IRR”) would be in excess of 350%.
The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. The Company’s decision to expand production is not based on a feasibility study of mineral reserves demonstrating the economic and technical viability of the expansion. As a result, there is increased uncertainty of the economic and technical risks of failure associated with the decision.

K92 engaged H and S Consultants Pty Ltd to complete a Mineral Resource Estimate for the Kora North Deposit (Table 2). This resource together with the previously reported Kora Mineral Resource Estimate dated March 2017 (Table 3) provide the resource base for the updated PEA.

K92 engaged Mincore Pty Ltd (“Mincore”) to complete the PEA for the expansion of the existing processing plant to double its capacity to approximately 400,000 tonnes per annum. The study found that the current crushing, milling and concentrate handling circuits have sufficient capacity to treat the Kora mine material at a rate of 400,000 tpa, subject to upgrading the crushing and flotation circuits and plant services. The estimated total cost of such expansion and upgrading would be US$3.7 million, including EPC and commissioning with a contingency of 10%.

The technical report containing the PEA, titled, “Independent Technical Report, Mineral Resources Estimate Update and Preliminary Economic Assessment of Kora North and Kora Gold Deposits, Kainantu Project, Papua New Guinea” with an effective date of September 30, 2018 (the “Technical Report”) was prepared by Anthony Woodward BSc (Hons.), M.Sc., MAIG, Simon Tear BSc (Hons), EurGeol, PGeo IGI, EurGeol, Christopher Desoe BE (Min)(Hons), FAusIMM, RPEQ, MMICA, Lisa J. Park, BEng (Chem), GAICD, FAusIMM. Refer to the Company’s news release dated January 8, 2018 for a summary of the Technical Report and results of the PEA. The PEA Technical Report can be found under the Company’s profile on SEDAR.

The Company engaged Australian Mine and Development Pty Ltd (“AMDAD”) to undertake the PEA mine plan for Kora and Kora North, which involved:

applying financial and processing parameters to determine cut-off grades for stope design;
generating three-dimensional stope shapes and mining inventory using the CAE Mineable Shape Optimizer (“MSO”) program;
creating a conceptual development layout to suit the MSO inventory;
producing a project cash-flow model; and
producing a simple mining schedule as input to the cashflow model.
The key results from the PEA for the combined Kora North and Kora deposits are as follows:

Could have a 13-year operating life and treat 4.9 million tonnes @ 9.0 g/t Au, 20 g/t Ag & 1.3% Cu (11.0 g/t Au Eq*);
Could achieve an estimated pre-tax NPV of US$710 million (US$559 million after-tax) using current metal prices, exchange rate and a 5% discount rate;
Initial capital cost estimated to be US$13.6 million, including US$3.7 million for the plant upgrade identified in the Mincore Scoping Study;
The additional combined development and sustaining capital cost is estimated at US$202 million spent over the life of mine;
Operating cost per tonne estimated to be US$163/tonne for the first five years and US$153/tonne thereafter;
Cash cost estimated to be US$429/oz Au Eq (inclusive of a 2.5% Net Smelter Return Royalty) and AISC of US$615/oz Au Eq;
Production of an estimated 135,000 Au oz and 2,100 Cu tonnes over a 5-year period from 2019 through to 2023, with average production of 90,000 Au oz and 6,500 Cu tonnes for the balance of the life of mine; and
Current metal prices used were: Au - US$1,300/oz; Ag – US$15/oz; Cu – US$2.90/lb.
*AuEq used in PEA calculated on above Current Metal Prices.

The Kora North resource estimate was defined after just twelve months of underground exploration drilling.

Table 2 - Kora North Mineral Resource Estimate

Global Mineral Resources Kora North Gold-Copper Mine - October 2018
  Category    Tonnes      Gold    Silver    Copper      AuEq§
        Mt       g/t      Mozs       g/t      Mozs         %      Mlbs       g/t      Mozs§
  Measured      0.15      18.7      0.09       8.9      0.04       0.5       1.6§19.6 0.09
 Indicated      0.69      11.6      0.26      14.1      0.31       0.8      11.8§12.9 0.29
Total M & I 0.85 12.9 0.35 13.1 0.36 0.7 13.3 14.1 0.39
Inferred Total 1.92 10.7 0.66 13.3 0.82 0.7 29.5 11.9 0.74
M in table is millions.

The Mineral Resource estimate was prepared and verified by Simon Tear (PGEO), consultant to the Company and a director of independent consultancy of H & S Consultants Pty. Ltd., Sydney, Australia (October 2018).

Key Assumptions and Parameters of Kora and Kora North Resource Estimate

Mineralization comprises two parallel, steeply west dipping, N-S striking quartz-sulphide vein systems, K1 & K2, within an encompassing dilatant structural zone hosted by phyllite. An additional structure, the Kora Link, has also been defined and provides a possible link between the two main vein systems.

Underground drilling consists of diamond core for a range of core sizes depending on length of hole and expected ground conditions. Sampling is sawn half core under geological control and generally ranges between 0.5m and 1m. Underground face sampling is completed for every fired round and is to industry standard.

QAQC data indicated no significant issues with the accuracy of the on-site analysis.

Core recovery of the mineral zone was initially 90%, this has improved to >95%. There is no relationship between core recovery and gold grade. Geological logging is consistent and is based on a full set of logging codes covering lithology, alteration and mineralization.

The geological interpretation of the vein systems is represented as 3D wireframe solids snapped to a combination of diamond drillhole data and underground face sampling. Definition of the wireframes is based on identified gold mineralisation in drillcore nominally at a 0.2g/t Au cut off in conjunction with geological control/sense and current mining widths.

Gold Equivalent (AuEq) g/t was calculated using the formula Au g/t +(Cu% x 1.53) + Ag g/t x 0.0127. (No account of metal recoveries through the plant have been used in calculating the metal equivalent grade. However, production is currently achieving 93% metal recovery for both gold and copper and gold is currently providing 95% and copper 5% of the total revenue of the mine).

Gold price US$1,300/oz; Silver US$16.5/oz; Copper US$2.90/lb.

The mineral resource estimate for the Kora deposit is based on the technical report prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”), and titled, “Mineral Resource Update and Preliminary Economic Assessment of Irumafimpa and Kora Gold Deposits, Kainantu Project, Papua New Guinea," with an effective date of March 2, 2017. This provides additional information on the geology of the deposits, drilling and sampling procedures, lab analysis, and quality assurance/quality control for the project, and additional details on the resource estimates. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.

Table 3 – Irumafimpa and Kora/Eutompi Resource Estimates

Resource by Deposit and Category
   Deposit  Resource§
  Category    Tonnes      Gold    Silver    Copper§Gold Equiv
        Mt       g/t       Moz       g/t       Moz         %       Mlb       g/t       Moz§
Irumafimpa Indicated      0.56      12.8      0.23         9      0.16      0.28§37 13.4 0.24
  Inferred      0.53      10.9      0.19         9      0.16      0.27        74§11.5 0.20
Kora/Eutompi  Inferred      4.36       7.3      1.02        35       4.9      2.23§215 11.2 1.57
Total Indicated 0.56 12.8 0.23 9 0.16 0.3 4.0 13.4 0.24
Total Inferred 4.89 7.7 1.21 32 5.06 2.0 218 11.2 1.76

M in table is millions. Reported tonnage and grade figures are rounded from raw estimates to reflect the order of accuracy of the estimate. Minor variations may occur during the addition of rounded numbers. Gold equivalents are calculated as AuEq = Au g/t + Cu%*1.52+ Ag g/t*0.0141.

K92 Mine Geology Manager and Mine Exploration Manager, Mr. Andrew Kohler, PGeo, a Qualified Person under the meaning of NI 43-101, has reviewed and is responsible for the technical content of this news release. Data verification by Mr. Kohler includes significant time onsite reviewing drill core, face sampling, underground workings and discussing work programs and results with geology and mining personnel.

About K92

K92 Mining Inc. is engaged in the production of gold, copper and silver from the Kora and Kora North deposits of the Kainantu Gold Mine in the Eastern Highlands province of Papua New Guinea, as well as exploration and development of mineral deposits in the immediate vicinity of the mine. The Company declared commercial production from Kainantu in February 2018 and has commenced an expansion of the mine. An updated Preliminary Economic Assessment on the property was published in January 2019. K92 is operated by a team of mining company professionals with extensive international mine-building and operational experience.

ON BEHALF OF THE COMPANY,

John Lewins, Chief Executive Officer and Director

For further information, please contact David Medilek at +1-604-687-7130.

www.k92mining.com