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Since the discovery of the Father’s Day vein, which yielded around 30,000 ounces of gold, Karora Resources has been one of the most followed companies in the junior mining space. The discovery completely changed the fortunes of the company and sent them down a path to expand their operation throughout Western Australia. Today they are looking more like a company heading towards a mid tier producer status as they continue to unlock their full potential. Despite the regional flooding, fires and a global pandemic, Karora really has done a fantastic job of bringing their operations together, lowering operating costs and increasing the overall resources across their vast land package.
Karora is on record that they will be releasing a growth plan in the coming months and this should offer some insight to where they are headed, but people have so many questions since they have opted to go with industry standard quarterly reporting. While this makes sense for Karora, it also allows for rampant speculation and has left some wondering why and what’s next. So while we wait for the growth plan, we decided to take investors questions to the company to see if we couldn’t get some clarity on the issues retail shareholders deem of importance.
Below you will find the answers to the questions that were submitted by Insidexploration.
Nickel Development and Opportunities
With Nickel prices climbing, what plans are in place to capitalize on Nickel at Beta Hunt?
In September 2020 Karora announced the first new nickel discovery at Beta Hunt in 13 years and in December 2020, the first updated nickel mineral resource since 2016. We have been investing in nickel production as a meaningful by-product credit and cash flow source for the Beta Hunt operation going forward.
Will nickel operations at Beta Hunt hinder Gold operations or can the two operate independently from one another?
Gold and nickel ore are hosted in the same shears zone (but in distinct host rock with nickel overlying gold mineralization), and therefore substantially the same infrastructure support both gold and nickel mining. The mining of gold and nickel at Beta Hunt are complimentary to each other.
Does the increase in guidance of 20% factor in Nickel as a byproduct?
No. By-product nickel production is not included in guidance.
Looking back at the sale of Dumont, do you think you made the right call to monetize the asset and were negotiations difficult given Karora only had a 28% stake in the project?
The sale of the remaining 28% stake in the Dumont project was absolutely the right decision for Karora. We owned a minority stake but remained the day-to-day operators which ultimately became a distraction from our core gold business and a financial drag. The sale of Dumont was structured in such a way that Karora could receive up to an additional $40 million, subject to certain price thresholds and other factors, when the project is sold in the future. So not only did we receive immediate cash of $11 million to reinvest in our gold business, but we also retain upside exposure to a hot nickel market.
Beta Hunt Operations
What is the status of the FDV? Has it been mined? And when can shareholders expect an update on the mining of this area?
Karora provides operational data for Beta Hunt as a whole. As with most companies, stope-by-stope sequencing and timing is not provided.
In saying that, long hole retreat open stoping such as we do at Beta Hunt,has to be done in accordance with our mine plan so that nothing gets left behind. It is critical that panels be taken in accordance with the geotechnically driven stress regime, as we do not backfill open stopes at this mine. Mining is a process and one that takes detailed care and planning to ensure the mineralized rock is removed not only as efficiently as possible but also as safely as possible. We also must ensure that we do not sterilize any ore via the requirement of unnecessary ore pillars due to an undisciplined approach to managing the geotechnical stress regime. Therefore, the levels above the Father’s Day Vein area that were part of the mineralized shear system, needed to be mined prior to accessing the area below the initial discovery.
Karora has been very active in developing access ramps, development drifts and upgrading the infrastructure to accommodate mining of the sedimentary layer where coarse gold is known to occur, along with other points of interest identified by our ongoing drilling underground at Beta Hunt. We would also like to ensure our shareholders that any material developments will be disclosed by news release.
Many drill intercepts in the Western Flanks yielded High grade gold, have those areas been mined?
Currently, most of the mining activity at Beta Hunt takes place in the Western Flanks zone where the bulk of the current Mineral Resource resides.
Will there be an increase in grade at Beta Hunt now that you have defined the ore body better with the additional drilling?
The base grade at Beta Hunt is expected to be approximately equal to the reserve grade of 2.6 g/t. This does not include any coarse gold that is encountered during mining, which is considered a bonus to base production when encountered. Larkin, our new gold zone south of the Alpha Island Fault, appears to be higher grade in the drilling we have completed to date. The Larkin Zone is not part of the current Beta Hunt Resource and Reserve and will be incorporated into the estimate in our 2021 estimate.
How is Paul applying his narrow vein expertise to mining at Beta Hunt?
Work conducted at Beta Hunt has shown the operation to be most economically mined as a bulk tonnage operation with large stopes. The widely disseminated nature of the gold mineralization within the shear zones results in reasonable homogeneous ore, while areas where pockets of coarse gold reside are difficult to forecast with accuracy (although the geological environment is understood). The only way to ensure all the coarse gold is recovered is to mine the entire width of the mineralized shear zones. Paul Huet has vast underground and open pit mining experience. His expertise, leadership and experience will be an important contribution to the success of current operations and future growth.
Are there any plans in place to increase production at Beta Hunt?
We plan to outline a growth strategy to the market in the coming months and Beta Hunt will be part of that plan. The mine currently produces approximately 65-70 kt per month. The current infrastructure could support higher production, plus the potential to expand production to the new Larkin Zone (in addition to current production from Western Flanks and A Zone), is an opportunity for increased production at a very modest capital cost given the level of infrastructure already in place.
What is the status of the ore sorting studies?
Ore sorter study work is an area that has been slowed down by COVID-19 related restrictions due to the challenges with moving material and equipment across state borders. The ore test equipment and experts are largely found outside Western Australia, resulting in limited ability to further on site testing. This work is being ramped up again and we will report any meaningful results once the proper study work is completed.
Milling Solutions
The original purchase of the HGO mill had some required mill expenditures, replacing secondary crusher, auto lube system, mill thickener, screens etc. What capital expenditures are expected for 2021 regarding mill maintenance and upgrades?
We expect mill maintenance and upgrades will require relatively modest expenditures in the low single digit millions. Again, more details will be available in the coming months when we outline our growth strategy to the market.
What options are available to upgrade the mill to accommodate the growing need for additional milling solutions?
Upgrading crushing and grinding capacity is the lowest hanging fruit in this area. Trade-off studies are ongoing for the next steps. We are executing a Phase I mill expansion starting in mid 2021 that will be complete by year end. We expect the expansion to add 550tpd of capacity. Again, more details to come in the coming months as part of our organic growth plan.
Are there any plans in place to upgrade the mill and what kind of downtime would you be looking at for these upgrades?
The first step is to optimize the current mill configuration. No down time beyond normal scheduled maintenance is expected for this and it will allow us to increase throughput at the Higginsville mill by approximately 15% to 1.6 Mtpa (from 1.4 Mtpa currently).Again, more details to come in the coming months as part of our organic growth plan.
Has the company considered a JV as an option to increase production and capabilities of their operations?
We are constantly looking at any opportunities we think could be accretive and drive value for shareholders. Our current focus and best value driver is to deliver a comprehensive organic growth plan to the market.
HGO Mining and Exploration
It was reported that a resource geologist was tasked with reviewing the historic resource of the Higginsville land package – Can you provide an update to what the results were and what course of action will be taken now that you have these results?
This work has delivered a substantial list of drill targets and brownfield mining opportunities that are being prioritized as part of the technical work that will support our organic growth initiatives.
What is the status of Hidden Secret and Mouse Hollow?
These projects, which are now combined into one larger open pit, are part of the Central Higginsville mine plan for 2021.Mining commenced in late 2020 and has provided part of the base load feed to the HGO mill.
When will you be done mining Baloo?
We are focused on optimizing mining at HGO. Among the considerations are ore characteristics, grade, location, mining methods, etc. Baloo is in the Greater Higginsville area and could potentially drop down the priority list as new higher grade mines begin to come online in the Central Higginsville area and the high grade Spargos open pit later in 2021.
Will guidance be provided for additional pits coming into the pipeline of feed in the upcoming growth plan?
The growth plan will include expected production from Beta Hunt, Spargos, Central Higginsville and Greater Higginsville. In general, guidance will be provided on a consolidated basis as we have done for 2021 with a consolidated guidance range for gold of 105,000 to 115,000 ounces.
When can we expect to hear about Lake Cowan drilling?
We provided first results from Lake Cowan targets on February 8, including significant gold grades discovered in relatively shallow drilling. We view this as very strong start to the exploration program in this area. Additional results to follow with numerous drill holes pending assay and drilling ongoing. As we have stated, the entire region is experiencing delays in receiving assays from labs due to overwhelming demand as well as labour challenges associated with COVID-19 restrictions. We report assays as we receive them.
Does the company have an update for shareholders on the palaeo channel exploration?
Not at this time.
Will the company be looking to start underground operations outside of Beta Hunt in 2021 or is more exploration drilling required and if so what are the main areas of focus?
There is near term brownfields underground at Central Higginsville, such as Two Boys, coming online in 2021.
Does Karora use contractors to mine the open pits or are all personnel in house?
Currently, open pit mining is conducted predominantly with contractors. COVID-19 restrictions have led to a pronounced shortage of skilled labour in Western Australia. Simply put, talented personnel that are domiciled in WA are extremely sought after for FIFO operations such as those found in our region. As restrictions on labour force mobility ease with the retreat of COVID-19 across Australia, we expect further opportunities to open with respect to staffing our operations.
Has the company considered buying their own RC drill in order to avoid any further delays with contractors and lower exploration costs?
Drilling capacity is not the limiting factor in assay returns, but rather the third party labs that must be used. Our drilling delays in 2020 were associated with shut downs required to reduce the number of third party workers on site while COVID-19 numbers were increasing in Australia. This was part of the reason we have successfully avoided any infections at site. We are now drilling again at full capacity with seven drills across our properties.
With further expansion planned by the addition of Spargos are there any new appointments planned for management to handle the integration of this new asset?
This is part of the reasoning for Paul to relocate to Western Australia. With growing production, additional operating personnel will be required, and Paul will help facilitate that process.
Financial Inquiries
Why is the company not executing the NCIB to support the share price?
To February 26, 2021, 173,000 shares have been repurchased under the NCIB. Karora will continue to consider further share repurchases under the NCIB. We employ a strict capital allocation protocol that considers the most attractive investment opportunities available to the company, including organic growth. In our organic growth plan we have a very high return use for our capital. Any capital shortfalls created by using our cash balance elsewhere would have to be financed/raised. We are extremely disciplined in approval of the use of our cash balance.
The company is considered to be undervalued by several analysts, why don’t we see more buying from management and insiders?
Management receives a meaningful portion of their compensation in shares. Given the fact senior has changed over in the 18-months, you should expect to see their share positions climb over time.
Does the company intend on paying off the existing debt or refinancing at a better rate?
We expect to refinance the debt at lower rates. The fact that we have now published the updated consolidated reserve and resource estimate and technical report will greatly assist in the process.
Will there be any additional dilution if the company buys another mill or do you feel confident that a deal could get done without the dilution?
We do not speculate on any possible future transactions. In general, the Corporation is very mindful of its capital structure and minimizing shareholder dilution.
How many institutions currently hold Karora stock?
Over 20.
What steps are planned to further reduce the General and Administrative costs for 2021 and how will you reduce overhead costs like rent, utilities, insurance and managerial salaries?
Karora took major steps over the course of 2020 to reduce overhead and streamline management. With the divestiture of Karora’s remaining 28% stake in the Dumont Nickel Project, including its obligation to manage and maintain the asset, the Corporation was able to reduce associated management and maintenance costs. Subsequently, Karora sublet its Toronto office space to further reduce costs. Future investments in G&A will solely be directed towards supporting the Corporation’s growth as a gold focused producer.
Now that the FCF has been repeated for multiple consecutive quarters; what steps have been put in place to discourage rampant spending and how will these controls be reported to shareholders?
As part of the transformation of the company since 2019, Karora has implemented very disciplined internal budgeting practices and capital controls. These controls are audited annually by independent firms.
Mining is dependent upon Equipment and the maintenance of the Fleet; what expenditures beyond the planned maintenance schedules are being contemplated to expand the mining operations currently underway?
This year, beyond normal sustaining capital, Karora plans to add a haul truck to upgrade the fleet at Beta Hunt, complete throughput optimization work at the HGO mill and complete pre-stripping activities at Spargos in preparation for mining. In total these items are expected to require ~A$5 million.
Karora plans to detail further capital requirements as part of the upcoming growth plan.
General Inquiries
There was a talk of a five month delay in drilling, yet shareholders were only made aware of it after the fact. Can you define when those delays were and when drilling actually got started again?
In March 2020, Karora announced COVID-19 protocols were put in place. Part of that effort was to focus on site activities directly related to production. Movement of personnel and equipment across State borders in Australia was also limited for much of the first half of 2020. This resulted in delays to our resource definition and exploration drilling.
In September 2020, Karora announced an increase in the exploration budget for full year 2020 to A$15 million (from A$10 million). Despite the delays, the Corporation was able to deliver on its commitment to deliver its first consolidated Mineral Resource and Mineral Reserve, announced on December 16, 2020. This was despite enormous challenges associated with the delays.
Does the company foresee any more Covid related delays in 2021?
COVID-19 protocols remain in place. We do not speculate on the future impact of potential changes in COVID-19.
Retail shareholders feel as though they have been cast aside in favor of institutions, what is being done to improve investor relations?
Karora will continue to keep investors informed through its continuous disclosure mechanisms (news releases, MDA, quarterly conference calls, investor conference participation, webcasts, presentations and other forms of communications. We value our retail shareholders greatly.
Has there been any progress on an Australian listing?
An ASX listing remains a priority for Karora in 2021. The announced relocation of Karora’s Chairman and CEO, Paul Huet, to Australia will greatly assist in moving this initiative forward.
Can we expect an interview with mine management (Sloane) and an update about the progress made bythe geologists defining the coarse gold and the relationship to the sedimentary levels at Beta Hunt?
Yes.
Conclusion
We hope that this Q & A has been helpful in providing clarity about the projects in Western Australia. We always do our best to get to the bottom of the inquiries we receive regularly and thank Karora for taking the time to respond to our questions.
About Karora Resources
Karora is focused on growing gold production and reducing costs at its integrated Beta Hunt Gold Mine and Higginsville Gold Operations (“HGO”) in Western Australia. The Higginsville treatment facility is a low-cost 1.4 Mtpa processing plant which is fed at capacity from Karora’s underground Beta Hunt mine and open pit Higginsville mine. At Beta Hunt, a robust gold Mineral Resource and Reserve is hosted in multiple gold shears, with gold intersections along a 4 km strike length remaining open in multiple directions. HGO has a substantial gold Mineral Resource and Reserve and prospective land package totaling approximately 1,900 square kilometers. The Company also owns the high grade Spargos Reward project which is anticipated to begin mining in 2021. Karora has a strong Board and management team focused on delivering shareholder value. Karora’s common shares trade on the TSX under the symbol KRR. Karora shares also trade on the OTCQX market under the symbol KRRGF.
For more information on Karora Resources please visit their company profile at www.Insidexploration.com /krr/ or their website at www.karoraresources.com
For a better understanding of their projects be sure to check out our in depth research reports on Beta Hunt and HGO below.
Cautionary Statement Concerning Forward-Looking Statements
This news release contains “forward-looking information” including without limitation statements relating to the timing for the completion of technical studies, liquidity and capital resources of Karora, production guidance, organic growth profile and the potential of the Beta Hunt Mine, Higginsville Gold Operation, the Aquarius Project, Spargos Gold Project and Lake Cowan prospect.
Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Karora to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that could affect the outcome include, among others: future prices and the supply of metals; the results of drilling; inability to raise the money necessary to incur the expenditures required to retain and advance the properties; environmental liabilities (known and unknown); general business, economic, competitive, political and social uncertainties; results of exploration programs; accidents, labour disputes and other risks of the mining industry; political instability, terrorism, insurrection or war; or delays in obtaining governmental approvals, projected cash operating costs, failure to obtain regulatory or shareholder approvals. For a more detailed discussion of such risks and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, refer to Karora ‘s filings with Canadian securities regulators, including the most recent Annual Information Form, available on SEDAR at www.sedar.com.
Although Karora has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date of this news release and Karora disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws.
Cautionary Statement Regarding the Higginsville Mining Operations
A production decision at the Higginsville gold operations was made by previous operators of the mine, prior to the completion of the acquisition of the Higginsville gold operations by Karora and Karora made a decision to continue production subsequent to the acquisition. This decision by Karora to continue production and, to the knowledge of Karora, the prior production decision were not based on a feasibility study of mineral reserves, demonstrating economic and technical viability, and, as a result, there may be an increased uncertainty of achieving any particular level of recovery of minerals or the cost of such recovery, which include increased risks associated with developing a commercially mineable deposit. Historically, such projects have a much higher risk of economic and technical failure. There is no guarantee that anticipated production costs will be achieved. Failure to achieve the anticipated production costs would have a material adverse impact on the Corporation’s cash flow and future profitability. Readers are cautioned that there is increased uncertainty and higher risk of economic and technical failure associated with such production decisions.
