K92 Mining Q2 2024 Earnings Report

K92 Mining EPS Results

• Actual EPS: C$0.03
• Consensus EPS: C$0.03
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

K92 Mining Revenue Results

• Actual Revenue: $65.39 million
• Expected Revenue: $78.48 million
• Beat/Miss: Missed by -$13.09 million
• YoY Revenue Growth: N/A

K92 Mining Announcement Details

• Quarter: Q2 2024
• Date: 8/13/2024
• Time: N/A
• Conference Call Date: Tuesday, August 13, 2024
• Conference Call Time: 5:30PM ET

K92 Mining (TSE:KNT) is engaged in the production of gold, copper and silver at 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, is in a strong financial position, and is working to become a Tier 1 mid-tier producer through ongoing expansions. A maiden resource estimate on the Blue Lake copper-gold porphyry project was completed in August 2022. K92 is operated by a team of mining company professionals with extensive international mine-building and operational experience.

K92 Mining Q2 2024 Earnings Call Transcript

Key Takeaways

• 0 lost time injuries recorded over the last 12 months, with enhanced safety technology and cultural initiatives reinforcing K92’s safety mindset.
• Temporary suspension of underground operations for approximately one month due to a fatal incident led to significantly lower Q2 production of 24,347 oz AuEq and elevated costs.
• Stage 3 expansion is over 50% progressed with critical equipment like SAG and ball mills on site, on track for commissioning in Q2 2025.
• K92 secured a $120 million credit facility with Trafigura, has drawn $60 million and has $80 million of additional liquidity available.
• Exploration at Arakompa now uses four drill rigs, has delivered exceptional high‐grade intercepts and aims to release a maiden resource by Q1 2025.

Presentation

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the K92 Mining 2024 Second Quarter Financial Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to David Medilek, President and COO. Please go ahead.

[David Medilek, President and COO at K92 Mining]

Thank you, operator, and thanks, everyone, for attending K92 Mining's 2024 Second Quarter Results Conference Call. We hope you and your families are doing well. In addition to myself, we have on the line John Lewins, Chief Executive Officer and Director, and Justin Blanchet, Chief Financial Officer. I would also like to remind everyone that after the remarks from management, the call will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes and risk disclosure in our MD&A and slide two of the webcast presentation. Also, please bear in mind that all dollar amounts mentioned in the conference call are in United States dollars, unless otherwise noted. Now, I'll turn it over to John to provide you with an overview.

[John Lewins, CEO at K92 Mining]

Thank you, David, and welcome everyone. We begin with safety, K92's number one priority. At the end of the second quarter, K92 marked a major achievement, with zero lost time injuries recorded over the last 12 months. Over this period, two independent safety audits were conducted. From these audits, a number of actions were identified, and many actions have been taken and completed. Safety technology on site has been enhanced, including the introduction of in-cab monitoring and a proximity and collision avoidance system, with more systems planned for the future. Culturally, there's also been multiple positive leading indicators. For several consecutive quarters, there has been a significant increase in job safety assessments to reinforce our safety mindset, and the number of safety warnings from our in-cab monitoring system has actually significantly reduced. Changes to personnel have been made where required.

[John Lewins, CEO at K92 Mining]

Resources have been and are being expanded for safety and training. As stated on previous Conference Calls, we take the increased lost time injury frequency rate in 2023 very seriously, while also noting that historically, K92 has operated with one of the best safety records in Papua New Guinea and the broader Australasia region, as shown in the chart. I'd like to reiterate that K92 relentlessly pursues our goal of achieving zero harm among our workforce. K92 is extremely pleased to have announced its 2023 sustainability report in June. The report builds on previous versions, enhancing our ESG reporting disclosure and our alignment with the global frameworks of SASB and TCFD. The report highlights K92's strong commitment to ESG and to the people and the country of Papua New Guinea, and this includes our focus on hiring and developing local content.

[John Lewins, CEO at K92 Mining]

With approximately 94% of our workforce Papua New Guinean nationals, including a majority from our local communities. Our strong commitment to supporting the local economy, including $24.5 million of expenditure to local support joint ventures and procurement of $105 million incurred in Papua New Guinea, representing 56% of our total procurement for the mine. Our delivery of significant benefits to the country, with $26.8 million of taxes and royalties paid, plus $0.8 million in direct community investment. Our commitment to combating climate change, with emission reduction targets set for 2030. So K92 is extremely proud of the positive impact it's having on the prosperity and development of Papua New Guinea. We encourage you to read our report, found at www.k92mining.com.

[John Lewins, CEO at K92 Mining]

In May 2024, K92 achieved a major milestone with the commencement of its inaugural Infrastructure Tax Credit Scheme project to upgrade the Konkua-Bilimoia Road. This $6.6 million project, inclusive of $0.5 million of general administration for the project itself and for other ITCS projects, is expected to be transformational for many of our communities, enabling reliable and efficient sealed road access to the main road network. This also opens up many opportunities for our community, including increased trade and business development. The picture on the right is a ground breaking ceremony attended by the Honorable Simon Sia, Governor of Eastern Highlands Province, and K92's VP, Government and Community Affairs, Philip Samar. Funding for the project is through a tax credit scheme, with up to 2% of assessable income to be allocated by K92 for government-approved community projects and deducted from future corporate tax payable.

[John Lewins, CEO at K92 Mining]

It's an excellent program. We're proud to be part of it, and we look forward to positively transforming the infrastructure of our local communities through this and many other projects to come. Moving on to operational performance. During the quarter, the Kainantu Gold Mine produced 24,347 oz gold equivalent. As previously announced, production for the quarter was impacted by the temporary suspension of underground operations for approximately a month, starting in mid-March, as a result of a Form 29 issued by the Mineral Resources Authority of Papua New Guinea for a non-industrial fatal incident which occurred on site, and this significantly impacted March and also April production, as underground operations needed to be re-ramped up and processing stockpiles needed to be rebuilt from scratch.

[John Lewins, CEO at K92 Mining]

During the quarter, a total of 95,582 tons were processed at a head grade of 8.5 grams per ton, with a cash cost of $919 an oz and an all-in sustaining cost of $1,510 an oz. As annotated on the chart, all-in sustaining costs have been elevated for the past few quarters as the company continues to make a considerable investment in the Stage three Expansion, particularly in 2024, with costs expected to decline considerably after delivering the expansion. I think it's important to highlight that prior to the non-industrial incident, Q1 was actually on track to be one of our strongest quarters on record, and a lot of positives can be taken from that going forward.

[John Lewins, CEO at K92 Mining]

Operational performance in May and June was strong, and as outlined in our operational guidance earlier in the year, the second half of the year is expected to be our strongest. We reiterate our 2024 operational guidance. In terms of key operational quarterly physicals, K92 has demonstrated the ability to sequentially expand the operation for several years, with physicals in the first half of the year clearly impacted by the temporary suspension of underground operations that impacted that March, and then in April. During the first half of the year, the process plant has continued to be a major operational positive.

[John Lewins, CEO at K92 Mining]

In the first quarter, the process plant set multiple monthly, weekly, and daily throughput records, exceeding the 2A throughput by 35%, 57%, and 75% respectively, clearly demonstrating that with tons in front of it from the mine, it is extremely capable and provides significant optionality going forward. The records also highlight the potential that the Stage Three process plant, which was designed on the same throughput parameters as the Stage 2A process plant, is much more capable than its 1.2 million tons per annum nameplate design. In the second quarter, the process plant set records in terms of metallurgical recoveries. As shown in the bar charts, gold and copper recoveries were significantly higher than both 2023 and Q1 2024, and importantly, higher than our integrated development plan assumptions.

[John Lewins, CEO at K92 Mining]

We see additional upside to recoveries upon delivery of the Stage Three process plant under construction, which is a more optimal plant design. I will now turn over to our Chief Financial Officer to discuss our financial results.

[Justin Blanchet, CFO at K92 Mining]

Thank you, John, and hello, everyone. During the second quarter of 2024, we had revenue of $47.8 million. We sold 19,064 gold oz at an average selling price of $2,246, compared to 28,141 oz at an average selling price of $1,883 in the prior year. As at June 30, 2024, there was 4,968 gold oz in inventory, including both concentrate and doré, an increase of 3,291 gold oz when compared to March 31 due to timing of sales.

[Justin Blanchet, CFO at K92 Mining]

During the second quarter of 2024, cost of sales was $27.7 million, compared to $29.2 million in the prior year, or $19.4 million compared to $21.8 million when excluding non-cash items. Cost of sales is lower, primarily due to reduced variable costs, including consumables and haulage associated with throughput, which decreased when compared to 2023. Q2 2024 cash flow from operating activities before changes in working capital was $17.3 million, compared to $16.2 million in the prior year. As of June 30, 2024, we had $71.1 million in cash and cash equivalents, spending $29.8 million in expansion capital in the quarter. We had a working capital balance of $91.7 million and had a net debt balance of $38.9 million on the balance sheet.

[Justin Blanchet, CFO at K92 Mining]

In June, K92 established two credit facilities with Trafigura, referred to as a loan in the financial statements, to borrow up to $120 million with an accordion feature that allows for an increase to $150 million. As of June 30, K92 has drawn $40 million from the loan and has since drawn an additional $20 million or $60 million in total. There are no restrictions on the remaining $60 million that may be drawn from the loan. Further, the $20 million of restricted cash shown on the balance as security for the loan can become unrestricted on January 1, 2025, meaning we have access to an additional $80 million.

[Justin Blanchet, CFO at K92 Mining]

As John mentioned, during the second quarter, the Kainantu Gold Mine produced 21,661 oz of gold, 1,246,639 pounds of copper, and 26,754 oz of silver, or 24,347 oz of gold equivalent. We sold 19,064 oz of gold, 898,578 pounds of copper, and 18,467 oz of silver. We incurred a cash cost of $919 and an all-in sustaining cost of $1,510 per oz of gold, which was significantly below our selling price of $2,246 per oz.

[Justin Blanchet, CFO at K92 Mining]

Our second quarter cash cost per oz increased to $919 from $597 in 2023. The increase was due to the higher cost of sales from expenditures incurred during the temporary suspension, which were expensed directly to cost of sales, lower amounts of development, and a lower amount of byproduct credits. It is important to note that we will see downward pressure on costs via economies of scale as operations ramp up and the Stage three Expansion is complete. I will now turn the call back to John to continue with the rest of the presentation.

[John Lewins, CEO at K92 Mining]

Thank you, Justin. The exploration and growth section, we begin with an update of the Stage three and four expansions, which will fundamentally transform K92 into a Tier 1 mid-tier producer through sequentially increasing production to 300,000 oz per annum, and then 470,000 oz gold equivalent per annum. Importantly, this transformation is happening near-term, with the commissioning of the Stage three process plant planned for Q2 2025. The delivery of Stage four expansion remains on track, targeting late 2026. As at the end of July, 57% of Stage three and four growth capital has been either spent or committed. And as a reminder, the process plant is the largest growth capital package, and that was awarded in July 2023 on a lump sum fixed price basis, which significantly de-risks the project for K92.

[John Lewins, CEO at K92 Mining]

Both the Stage three and four expansions are fully financed from existing cash, cash flow, and credit facilities. In June, we announced the establishment of $120 million credit facilities with Trafigura, upsizing from the previously announced $100 million. In addition to this, there's an accordion feature to increase the aggregate amount under the credit facilities to $150 million. Well-positioned in K92, with not only significant liquidity for Stage three and four expansions, but also enabling the potential to add significant value through exploration during this construction period, which I'll discuss later in the presentation. As Justin noted, we've drawn $40 million from these facilities as at the end of the second quarter, and subsequent to quarter end, an additional $20 million. There are no restrictions on the remaining $60 million that currently can be drawn from the loan.

[John Lewins, CEO at K92 Mining]

Plus, there is an additional $20 million of restricted cash that can become available from January 1st, 2025, for a total of $80 million of available liquidity. Now, concurrent with the credit facility closing, we also closed our new offtake agreement with Trafigura, who have been our offtake partner since the start of operations. The new offtake and upsized credit facilities reinforce our strong long-term relationship with Trafigura. The offtake is accretive, securing competitive terms on metal spot prices, attractive payment arrangements, and improved metal payabilities. Later this year, we plan to upgrade our Integrated Development Plan to reflect these enhanced offtake terms and also our substantially larger mineral resource, which increased by almost 50% when factoring in depletion from the last economic study.

[John Lewins, CEO at K92 Mining]

In terms of the Stage 3 construction, we'll begin with a 3D animation flyover of the process plant design, looking at the entire circuit, with the dry end of the circuit in the distance and the wet end in the foreground. The circuit is a conventional single-stage crush SAG ball arrangement, with gravity and flotation recovery to produce Doré and a gold-copper concentrate. We now move much closer to the plant, starting with our single-stage jaw crusher. Crushed product then reports to a surge bin with an additional ore stock pile reporting to a dead stock pile. Reclaimed crushed ore then reports first to the SAG mill, and then discharged from that, reporting to the ball mill. The mill product undergoes gravity and flotation recovery, producing Doré from the gravity and a copper, gold, silver concentrate from the flotation.

[John Lewins, CEO at K92 Mining]

The recovery method is the same proven methodology that we use in the Stage 2A Expansion, but with a more optimized design, which includes in-line analysis, which we expect will deliver better metallurgical recoveries. Based on the performance of the Stage 2A plant significantly outperforming the throughput model, we have designed this new plant to be expandable, able to add additional flotation, filtering capacity, for instance, which provides sufficient room to make cost-effective upgrades and increase the throughput. We'll now pivot to recent drone footage of the construction site. For those of you who were on the last webcast conference call, which was in May, you'll certainly appreciate considerable progress that has been made. Over 50% of the civil works are now completed, and the mechanical installation is due to start in September.

[John Lewins, CEO at K92 Mining]

Starting with the primary crusher area, the raft foundation for the jaw crusher is in, and work is underway on the walls. The workers on the right are setting up steel panels to support erecting the walls in various concrete lifts. Crusher is significantly oversized, which is important for future expansions. For the crusher stockpile reclaim area, the raft foundation is in, and the walls are being set up. In the grinding area, you'll notice that this area has progressed the most, as the other areas are lower priority based on our construction schedule. On the far side is where the ball mill will be installed, with the pedestal for the feed end and jacking cradles complete. Concrete work is currently forming the motor end of the bearing. Closest to us is where the SAG mill will be installed.

[John Lewins, CEO at K92 Mining]

The raft foundation is poured, and formwork is underway for the mill. On the right side, concrete will be poured for the cyclone tower raft foundation imminently. On the left side, excavations for the mill discharge hopper have also been completed. For the flotation circuit, the raft has been poured and pedestals lifted. The first layer of backfill and compaction have been completed. At the tailings thickener, an extensive amount of work has been done.

[John Lewins, CEO at K92 Mining]

All pedestals have been poured, and the team is in the process of removing formwork. The concentrate thickener footings have been poured, the pedestals have been poured, and we're at the backfilling stage. The final part of the circuit is the lowest priority, with work on wall footings underway for the concentrate, flotation, and storage sheds. Earlier this month, we marked a major milestone with the arrival of the SAG and ball mills to site.

[John Lewins, CEO at K92 Mining]

The photo on the left is a Ball Mill shell and ends, and the SAG Mill ends. The SAG Mill shell is in country and will be transported to site imminently. Many other process plant long lead items are also now on site, as shown in the photo, including the float cells, concentrate thickener, tailings thickener, Ball Mill feed chute, mill girth gears, mill components such as the motors. Long lead items for the process plant are tracking ahead of the construction schedule. We're very excited with the increased process plant construction activity, which is gaining significant momentum, and look forward to providing further updates on the process plant construction in due course. On the Paste Fill Plant, we've made significant progress. The front-end engineering design is effectively completed. Many of the long lead items are ordered, including the live bottom feeders, paste mixers, filter presses, and pumps.

[John Lewins, CEO at K92 Mining]

Work towards the award of the construction contract is well advanced. Work on other ancillary construction packages, such as the power station, haul road upgrades, camp upgrades, warehouse, maintenance facilities, et cetera, are also making good progress. Beyond the Stage three and four Expansion surface works, multiple near-term major infrastructure upgrades that will fundamentally transform the underground mine are being put in place. The Twin Incline, as shown on the image on the right, is effectively complete. It's capable of operating trucks that are four times the speed and approximately 50% larger than what we're currently using. It will also eliminate double handling at the mine portal and allow us to haul material directly to the process plant.

[John Lewins, CEO at K92 Mining]

As part of the expansion, we're also putting in place a series of ore and waste passes to efficiently leverage gravity to connect the main plant to the highly productive Twin Incline infrastructure. Now, as shown in this video, the Raise Bore rig is operational. It's currently boring a 5-meter diameter raise to upgrade ventilation in the main mine. The Raise Bore vertical development advance rates have been faster than budgeted, which is very encouraging, and the raise is almost complete, marking yet another milestone as we transform the infrastructure of the underground mine for the Stage three and four Expansions. The second raise plan will be for the waste and ore pass system.

[John Lewins, CEO at K92 Mining]

Now, these various infrastructure upgrades, combined with a tripling of the mining fronts in 2024, as shown on this slide, are set to fundamentally transform the mine and business into a Tier 1 mid-tier producer near term. In terms of exploration, we're drilling the Kora, Kora South, Judd, Judd South vein systems, plus the Arakompa vein system. On the sixth of May, K92 reported a total of 140 holes at Kora, Kora South, Judd, Judd South. These results continue to demonstrate that this is a world-class deposit with significant upside for future growth. The results at Kora discovered a new potential dilating zone to the south beyond the resource, expanded and upgrade a large zone of high grade, as demarcated by the large ellipse with the dashed black line above the mine workings, and expanded high-grade mineralization to the south from underground step-out drilling.

[John Lewins, CEO at K92 Mining]

It's an important highlight that exploration to the south continues to intersect high-grade copper, as annotated on the K2 long section, with multiple significant step-out intersections approaching 4% copper, in addition to recording high gold. These intersections have extended the high-grade copper zone further to the south and continue to confirm our thesis for high and potentially increasing copper grades as we drill further to the south towards the A1 porphyry. Judd has also delivered some impressive drilling results, including expanding vertically a high-grade zone at the J1 vein, as demarcated with the large dashed black line ellipse, with multiple +1 oz per ton intersections. Like Kora, these results are particularly significant as they are immediately above the main mine workings, setting ourselves up well to mine that area in the near to medium term for the Stage Expansion.

[John Lewins, CEO at K92 Mining]

The results at Judd also intersected high-grade mineralization in a step-out drilling 300 meters to the north in an area with effectively no drilling, highlighted by our KODD0055, recording 9.85 meters at 7.85 grams per ton gold equivalent near surface. Now, on the tenth of June, K92 announced its second set of drilling results at Arakompa, reporting 9 holes. Arakompa, as shown on the map on the right, is located approximately 4-4.5 km from the process plant, which is closer than Kora and Judd. Historically, Arakompa has recorded limited drilling, with only 18 holes, largely shallow, having been drilled for a total of only 1.8 km drilled. Our initial drilling results were outstanding, and the second set of results were exceptional.

[John Lewins, CEO at K92 Mining]

A significant amount of high grade was intersected, including KARDD0011, recording 3.7 meters at 42.35 grams per ton gold equivalent; KARDD0009, recording 6.7 meters at 14.35 grams per ton gold equivalent; and KARDD0006, recording 12.6 meters at 19.87 grams per ton gold equivalent. The high-grade lodes are hosted within a wide mineralized corridor, overprinted by porphyry style mineralization. This has delivered multiple bulk intersection and average reported true thickness of 67 meters. Highlights included KARDD0006, recording 94.4 meters at 3.14; KARDD0011, recording 86.6 meters at 2.12; and KARDD0010, recording 66 meters at 2.1 grams per ton gold equivalent, which also ended early in mineralization... Importantly, as shown on the image on the right, the target size of Arakompa is very large.

[John Lewins, CEO at K92 Mining]

To date, we've defined a strike length of over 400 meters, with only 20% of the 150- to 225-meter wide corridor strike length drill tested by K92. In addition to growing the deposit along strike, Arakompa has significant potential at depth, as shown in the long section image on the left, and also significant potential within the 150 to 225 meter corridor, where the full width of the corridor has not yet been drill tested, as shown in the cross-section on the right. We're pleased to report that exploration at Arakompa continues to accelerate. As shown in the very recent drone footage, there are now 4 drill rigs operating at Arakompa. At the beginning of the year, we had one drill rig. When we hosted our Q1 conference, we had two drill rigs drilling.

[John Lewins, CEO at K92 Mining]

And driven by the strong results that we've seen, or very strong results, in fact, we've now got four rigs drilling. The rig we've zoomed into is our fourth drill rig operating. It's situated more towards the east than the other pads, providing us with some different vantage point to target that very wide mineralized corridor. Conditions at Arakompa for drilling have been good. The rock is competent, penetration rates continue to be productive, even faster than we see at Kora and Judd. We plan to announce a maiden resource at Arakompa by Q1 2025, and look forward to providing updates at Arakompa in the near term. With that, operator, we'd like to commence the Q&A section. Thank you.

[Operator]

Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then One on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then Two. We'll pause for a moment as callers join the queue. The first question comes from Ovais Habib with Scotiabank. Please go ahead.

[Ovais Habib, Precious Metals Analyst at Scotiabank]

Hi, John, and K92 Mining team, congrats on a good quarter and really good to see things are progressing well on the expansion as well. Couple of questions from me, John. Number one, second half is expected to be significantly better than the first half. What is going to be driving that? Is that basically grade or throughput or both? Any color you can provide on that would be great.

[John Lewins, CEO at K92 Mining]

Well, thanks, Ovais. So if you look at the second quarter, I think our— Sorry, second half. Our first half, although we, as we've noted, we had some significant challenges, was still, I think, our equal second best ever first half of the year. And in fact, the first quarter was marginally above budget. Second half of the year, we expect to see a significant increase in throughput, as the mine itself ramps up. So it will primarily be driven by an increase in tons processed through the plant. But there is a, I think, a marginal increase as well in the grades.

[Ovais Habib, Precious Metals Analyst at Scotiabank]

Okay, got it. And then just on that front, in terms of increasing the mining rates, you know, obviously, you know, your ventilation raise has started to progress. Where does that stand in terms of completion? And I'm assuming that's what's gonna generate your accelerated development and mining rates.

[John Lewins, CEO at K92 Mining]

Yeah, look, Ovais, you're quite, quite correct. The ventilation is a key, is a key for us in, in stepping up underground. The raise bore is due to, to break through, I think early in September. So that will be our first raise, almost 300 meters, 5-meter diameter. Generally speaking, the, the, progress on that, we've got more meters per day than we, than we budgeted, so we're, we're pretty happy with that. And so that end of the quarter, we'll, we'll have that, new ventilation, that interim ventilation, because it is an interim step, should be up and running by end of quarter, early next quarter.

[John Lewins, CEO at K92 Mining]

And, as you know, we've got a site visit coming up in October, and the people who I see, those who are coming along will be able to see and hopefully feel that as well, being underground.

[Ovais Habib, Precious Metals Analyst at Scotiabank]

That's great. That's great. And so John, I mean, in terms of the ventilation, I mean, this essentially was expected to be completed by the end of Q4. So things are progressing extremely well on the start, as well as how fast you're expecting it to be completed then?

[John Lewins, CEO at K92 Mining]

Oh, this is the interim step. We've still got a further step, which is the Puma Incline.

[Ovais Habib, Precious Metals Analyst at Scotiabank]

That's right.

[John Lewins, CEO at K92 Mining]

That's scheduled to break through in late Q4, early Q1, and be operational in Q1 next year. Now, that is our long-term ventilation. That's where we're putting in two two-megawatt fans, variable speed. And that ventilation basically is life of mine as it currently stands.

[Ovais Habib, Precious Metals Analyst at Scotiabank]

... Perfect, perfect. Thanks for the clarity on that. And yeah, that's it for me, John. Thanks for taking my questions.

[John Lewins, CEO at K92 Mining]

Thanks, Ovais.

[Operator]

The next question comes from Stephen Soock with Stifel. Please go ahead.

[Stephen Soock, Director at Stifel]

Hi, John and team. I echo Ovais, congrats on a strong quarter despite a rocky start, but great, great results. My question is more on the plant construction side. If you could just maybe shed a little more light on what's critical path on the plant construction. I know it's a fixed package, but obviously timelines are important there. So, you know, what needs to be done to make sure that's online for the end of Q2 for it to be fully operational through Q3 next year? Thanks.

[John Lewins, CEO at K92 Mining]

Thanks, Steve. So the critical path is primarily the SAG and ball mill, as is generally the case. Not always, but generally the case in, in, when you're doing plants. Lead times for the, the mills, the mill package was the, was the longest lead time, and, as you, as you saw in the presentation, the mills are on site, apart from the shell for the SAG mill, which is, which will be transported up from the Port of Lae to, to site, later this month. That, that is our, our critical path, and right now we're on, we're on track to see that, completed and able to start commissioning at the end of the, by the end of the second quarter.

[John Lewins, CEO at K92 Mining]

That would be followed by probably the flotation as the next sort of critical area. Right now, we're, I guess, we're pretty comfortable with what we're seeing there. I mean, obviously, steel work, a lot of steel work is starting to come in as well, as having finalized the designs there, et cetera, et cetera. And then, of course, it's, it's, it's obviously ramping up, ramping up the underground. I guess the other side of it.

[Stephen Soock, Director at Stifel]

Appreciate that.

[John Lewins, CEO at K92 Mining]

Yeah. The other side of it that was flagged is right now we're seeing our existing plant able to do a lot more tons than the 600,000 tons per annum, and that's a big positive in terms of the new plant as well.

[Stephen Soock, Director at Stifel]

Got it. Great. No, great to see everything on track there, and arriving on pace on everything that is critical path. That's it for me. I'll turn the line over to someone else.

[John Lewins, CEO at K92 Mining]

Thanks, Steve.

[Operator]

The next question comes from Andrew Mikitchook with BMO Capital Markets. Please go ahead.

[Andrew Mikitchook, Director of Equity Research at BMO Capital Markets]

Just a couple of quick questions. That video, I think, was quite instructive to show the progress at the plant site. Is it fair to say that the excavations are all done, more or less, or the majority of them, so the kind of civil excavations are.. That timeline risk and surprises are behind you?

[John Lewins, CEO at K92 Mining]

That's correct, Andrew, and that's a very good point to focus on because it can give you surprises and what have you. So yes, that's all been completed, and that includes piling where we've needed to do some piling, et cetera, et cetera.

[Andrew Mikitchook, Director of Equity Research at BMO Capital Markets]

Yeah. And then I think the wording in the press release was to the effect that the contractor has completed mobilization, and I think the actual wording that you handed over the site to them. So that also is an important timeline, that they're there, and they have their people, and they're committed to all this, right?

[John Lewins, CEO at K92 Mining]

Correct. It becomes a key date of handover of site. So right now, they're on site. Their civil subcontractor is on site. The steelwork subcontractor is due to mobilize, start mobilizing, I think, by the end of this month and start erection in September.

[Andrew Mikitchook, Director of Equity Research at BMO Capital Markets]

Okay. And then just last question. I didn't write fast enough, John, when you were talking, responding to an earlier question about the paste fill plant. Can you just go over the timeline there? And... 'Cause I think that would be one of the big components in going from 57% completed and committed to a much larger number once that's locked in. So can you just walk us through that one more time, please?

[John Lewins, CEO at K92 Mining]

Okay. So the Paste Fill Plant is a bit over $50 million, so it's a very significant portion, as you quite rightly identified, of our overall capital. We have placed orders for long lead items in relation to that, such as filters, pumps, mixers, et cetera. We're just finalizing the tender documents to go out on tender for the actual construction. And that includes, obviously, the contractor that's building the process plant, but there are others as well who will be tendering on that. Start of commissioning of that isn't until the third quarter next year. You basically want to have your process plant reasonably stable before you start trying to commission your paste fill.

[John Lewins, CEO at K92 Mining]

Otherwise, you've got instability leading into your paste fill, which is not ideal, 'cause as you know, paste fill requires stability in order to perform optimally. Having said that, the design that we have does actually allow better flexibility than you would see in a standard plant, in as much as we're producing a filtered product, which we take underground and repulp, and therefore, you have more flexibility between the two plants.

[Andrew Mikitchook, Director of Equity Research at BMO Capital Markets]

Just in terms of timeline, like, should we expect before year-end to see this move from tendering to locked in? Is that a reasonable expectation?

[John Lewins, CEO at K92 Mining]

Oh, absolutely.

[Andrew Mikitchook, Director of Equity Research at BMO Capital Markets]

Okay.

[John Lewins, CEO at K92 Mining]

We'd expect to award the contract, next quarter. Early.

[Andrew Mikitchook, Director of Equity Research at BMO Capital Markets]

In Q4?

[John Lewins, CEO at K92 Mining]

Yeah.

[Operator]

Once again, if you have a question, please press star then one. The next question comes from Alex Terentiew with Ventum Financial. Please, go ahead.

[Alex Terentiew, Analyst at Ventum Financial]

Hi, everybody. It's great to see some good progress being made at Arakompa. Obviously, you guys have 4... as you said there, 4 drills now running, so you're quite excited about that, and you've got a maiden resource coming out. But I guess my question is, can you give me a bit of color on the steps then with regards to permitting and a mining license to put one in place to get ore from Arakompa into the mill? I mean, obviously, you're highlighting it as a very prospective target, so the sooner you can get that into a potential mine plan, you know, I would imagine, the better. So can you just kind of walk me through what that process would be like?

[John Lewins, CEO at K92 Mining]

Yep. Thanks, Alex. So, right now, obviously, it's in, it's in our EL. At this point in time, it's our intent to put an application in for a mining license next year, covering Arakompa, Maniape, Mati, and also the Kora and Judd South, where they extend beyond the existing mining lease. The total area you can have as a mining lease, I think, is about 60, 60 sq km, and we've got a layout already, a design already of what the mining lease that we want, which fits in with that requirement. And we've already had started our discussions with the MRA and in fact, with government in relation to putting that application in. We've started work such as mapping of communities and people because that's an important part of the process as well.

[John Lewins, CEO at K92 Mining]

The communities generally, that we would be engaged with in relation to an extended mining lease are already part of the existing mining lease. Maybe a few additional people, but in the main part, there are than those people, there will be some additionals as well. It's a mining lease application. It is not a special mining lease. It's not an expansion of the mining lease, because under the current legislation, there is no ability to expand a mining lease. I'd note, having said that, that as recently as last week, the MD of the MRA highlighted that the government, it is the intent of the government to modify the act to allow for mining leases actually to be expanded.

[John Lewins, CEO at K92 Mining]

If that occurs before we put the application in, then we would actually look at expanding the mining lease rather than putting a new application in. But we're working on the premise right now that it would be a new mining lease. From the perspective of information, there's not a huge amount of difference, but there is a view that expanding a mining lease would be quicker than getting a new mining lease in place. Realistically, putting it in 2025, you would be expecting a mining lease issued late 2026-2027, and you really wouldn't be in a position to start mining until that point anyway, because as it stands right now, you know, we spoke about 400-500 meters of strike length of Arakompa. But on the surface, we've mapped this for about 1.7 km.

[John Lewins, CEO at K92 Mining]

We don't, at this point in time, know what sort of depth extent that we're looking at. And, you know, we'll gradually be drilling deeper and deeper as well as along strike, and obviously, you know, we are putting significant rigs on this to, as quickly as possible, get ourselves a real view of what we have. But I'd sort of point out, if you look at Kora, and remembering we had underground access to Kora, we've been at Kora now for seven years. We've drilled, I can't remember now, 600 holes or something. There's an enormous number of holes that have been drilled in order to get us to the sort of resource that we have now.

[John Lewins, CEO at K92 Mining]

I think, you know, we're sitting 2.4 million or thereabouts in measured and indicated, and another 4.7, I think, in inferred. Overall, I think the total number is close on 8 million oz when you take into account what we've already mined. So it will be, we think, a multiple year drilling out of this deposit. And we certainly see it has similar strike length to what we see at Kora and Judd, or similar potential strike length that we see at Kora and Judd. And so there'll be a, there'll be a heck of a lot of drilling, and there'll be a lot of drilling from underground.

[John Lewins, CEO at K92 Mining]

Potential access is similar to the Cora-type model, in that you're coming in the side of a mountain and going up into your deposit. So, you know, realistically, I think the earliest you could probably look at it is 2027. And that's where the capacity of the new plant and the potential for the new plant to achieve Stage Four without restarting the existing plant becomes important because, obviously, that means that you've got a spare plant sitting there with a capacity of 600,000 tons run, or whatever that number is, that you could use for something like Arakompa. Sorry, long answer.

[Alex Terentiew, Analyst at Ventum Financial]

No.

[John Lewins, CEO at K92 Mining]

We have been giving it some, a lot of thought, I can assure you, Alex.

[Alex Terentiew, Analyst at Ventum Financial]

No, that's great. It's an important part of the next leg, so that I appreciate the clarity.

[Operator]

Once again, if you have a question, please press star then one. There are no further questions in the queue, and this concludes the question and answer session. I would like to turn the conference back over to John Lewins for any closing remarks.

[John Lewins, CEO at K92 Mining]

Well, thanks for that, Brenda. Thanks, thanks for joining us today on our latest quarterly update. In many ways, I think we believe this is possibly the most important quarterly results presentation that we've had, in that we are now very much advanced in our transformation of the Kainantu mine, with the implementation of Stage Three and moving it very much into delivering what we've, I guess, been identifying and promising for a number of years, which is moving it into a Tier One status, producing mine, long life mine. When you're on site, and some people will be on site in October, you'll see massive progress towards achieving that, both underground and on the surface, and we see progress daily. It's really exciting to see. We...

[John Lewins, CEO at K92 Mining]

I just presented at the PNG Investment Conference in Brisbane, something that government actually wanted us to do, because currently, we're the biggest investor in Papua New Guinea, and so we get a lot of kudos and a lot of support from government for that. If we look at operations, you know, this first half of the year undoubtedly was challenging, and despite that, we actually produced, I think, equal second best first half of the year that we've achieved. We are well set up, well-positioned for achieving +70,000 oz second half of the year. We're sitting in, obviously, a very positive price environment, and we're doing, we're in that positive price environment while we're constructing, which is really positive for us in terms of our cash flow.

[John Lewins, CEO at K92 Mining]

Obviously, in terms of ramping up our production, perfect timing in terms of seeing that strong price environment. Looking at our exploration, we're obviously extremely excited by Arakompa. We started off the year with one rig there, we've now got four. We'll have more results out soon, but as you will have seen from the first two sets of results that we put out, it is a really exciting prospect. And it's one of a number of high-grade prospects that we intend to be drilling over the next couple of years. We spoke about Maniape, which is just next to Arakompa, and certainly next year we see ourselves starting to drill at Maniape and potentially Mati as well.

[John Lewins, CEO at K92 Mining]

So, we are also looking at first quarter of next year to bring out that first resource in Arakompa. And again, for us, you know, very exciting times. We're looking forward to sharing the operations results that we're seeing and having people able to see it, see what's happening on our construction of the Stage 3, and see what's happening on the exploration with the site visit that we've got planned in October, and then obviously sharing that in our next quarterly results. So thanks again, everyone, for joining us in this call, and we look forward to the next one. Thank you very much.

[Operator]

This concludes today's conference call. You may disconnect your line. Thank you for participating, and have a pleasant day.

Participants

Executives

• David Medilek, President and COO
• John Lewins, CEO
• Justin Blanchet, CFO

Analysts

• Alex Terentiew, Analyst at Ventum Financial
• Andrew Mikitchook, Director of Equity Research at BMO Capital Markets
• Ovais Habib, Precious Metals Analyst at Scotiabank
• Stephen Soock, Director at Stifel