K92 Mining Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2023

There are 9 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the 2023 First 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 and Xero.

Operator

I would now like to turn the conference over to David Medelek, President. Please go ahead.

Speaker 1

Thank you, operator, and thanks everyone for attending K92 Mining's Q1 2023 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 Blanchard, Chief Financial Officer. I would also like to remind everyone that after the remarks from management, Slide 2 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.

Speaker 1

Now I'll turn over to John to provide you with an overview.

Speaker 2

Well, thank you, David, and welcome, everyone. So during the Q1, the operation continued to Progress on multiple fronts, performing strongly in all areas other than grade, and that was due to some unexpected short term challenges, which we'll go into So I was in Papua New Guinea late last month. The operation is certainly on top of those challenges and the mine has performed well since mid April. There is a major focus on increasing our operational flexibility on multiple fronts and this is obviously something that will continue. I think it's important to highlight that we've got a strong Mining track record, having successfully mined core for 5 years and Judd for almost 3 years, while at the same time successfully expanding our whole operation During this time, increasing throughput by 2 50 percent in a pandemic environment.

Speaker 2

There are multiple positives from Q1, and we'll continue To build off those, process plant performance has been very strong, exceeding our expectations and continuing to set group records. Development, which has been a major focus, delivered another consecutive quarterly development advance record. And then finally, 1092 achieved multiple growth catalysts and milestones during the quarter, including strong exploration results on Kora, Kora South, Chad South And also commencing exploration drilling for the first time ever on the A1 copper coal porphyry target, which we see very much as our number one target. So on the safety front, we recorded no lost time injuries during the Q1. And as the chart shows, Since commercial production commenced in 2018, K92 has operated with a lost time injury frequency rate well below industry average.

Speaker 2

However, as previously reported, subsequent to the end of the quarter, with some profound sadness, we had to report that on May 2, 2 individuals were fatally injured during a vehicular accident. Now the accident occurred off-site, so it wasn't on the mine lease area. In fact, It was on a remote country road, some distance from the mine. So mining operations were not impacted. And I would like to say on behalf of K92 Mining, to the family, the friends, the co workers of our 2 colleagues, we offer our sincerest condolences, our heartfelt prayers During this time, safety has been always will be a major focus for K92.

Speaker 2

On the ESG front, I'd like to begin with providing very positive progress update on our tax credit scheme. So after multiple meetings last year, The committee has now been formed and the endorsement of the first round of projects is planned in the near term. So for clarity, Tax credit scheme allows for 2% of K92's assessable taxable income to be allocated to eligible projects, Primarily focused on infrastructure and then we get a commensurate tax credit granted. So the program effectively partners With government to deliver even more projects and benefits to communities and multiple priority targets have been identified. Importantly, tax credit scheme is in addition to our existing community programs.

Speaker 2

Now while in Papua New Guinea in late April, we had the pleasure of Hosting the Board of Directors of K92 for a site visit to our operations, plus meetings in Port Moresby with a wide range of Stakeholders including representatives of government, Papua New Guinea Chamber of Mines and Petroleum, suppliers, service providers, Industry, Academia and Nicholas and Media. Our picture here shows our Chair, Andrew Dini, With this year's recipients of our K92 Mining Tursery Scholarship Program, plus 2 recipients from a scholarship from our JV partner, Pagini. Each K92 dollarship recipient receives a medal, which honors a senior Papua New Guinean leader within K92. The program itself is an annual program and it's to 3rd year students in the study of mining, metallurgy, geology. This year we added Women in Mining, Scholar recipients also when they complete their 4th year, they then join the mine and go into our 2 year graduate training program.

Speaker 2

I'd also like to announce that this coming year, we will be adding A further scholarship, which will be a postgraduate scholarship, which will be the Tukey Angus Memorial Scholarship in honor of Leitche. Now the Board of Directors also had the honor of having dinner with the Prime Minister of Papua New Guinea, the Honorable James Morapi, The Governor of Eastern Highlands Province, the Honorable Simon Sia and Member of Parliament for Kedantu District, the Honorable William Hagabunno. And of course, the support of government continues to be a major factor in our success. Now moving to operational performance. During the quarter, we produced 21,488 ounces of gold equivalent with 117,900 and 3 Tons processed at a head rate of 6.35 grams per tonne gold equivalent.

Speaker 2

Now that compares with Q1 2022, Oil process increased 18%. Cash costs $7.58 per ounce and all in sustaining costs $15.06 per ounce. Production during the quarter, as we've alluded to, was impacted by 2 short term issues, which gave us 8 days of unplanned plant maintenance and then the challenging ground conditions localized area at Cora, which I will discuss in some detail later in the presentation. In terms of the key operational quarterly physicals, Canantu delivered near record ore times processed and mined Plus record development, which we see is particularly strong when you consider the short term challenges that faced during the quarter. As noted in previous conference calls, increasing our development rate continues to remain a major focus as we catch up on the development that was impacted Due to COVID and of course subsequent to COVID supply chain issues.

Speaker 2

Therefore, I'm really pleased with the development We've achieved in the past two quarters with the arrival of another jumble during the last quarter and then we have a further jumble To mid year and then another one by the end of 2024. So we'll be looking to build on these two quarters And continue to expand and increase our development rates. Now in addition to the strong development advance rates, a major positive in the Q1 has been the performance of In March, we set a new monthly record averaging 1490 tonnes per day. That's 9% above the stage expansion rate. The plant also set 4 new daily records during the quarter as shown in the chart here With the current record now standing at 1815 tonnes processed in a single day.

Speaker 2

So Stage 2a expansion is currently undergoing Final commissioning, and we see the potential for a further throughput upside with this. Now, As previously reported, during the Q1, unexpected operational challenges occurred in both the process plant and the mine. At the mine, notably more challenging ground conditions than expected were encountered in a localized area in late February. And that impacted on production stoping rates and access to a large high grade of Volker stoping area, which is circled here in the diagram. Generally in this situation, the mill feed will be supplemented by mining from additional higher grade mining fronts as we mine through the impacted area more slowly.

Speaker 2

In this case, as I think you can see from this diagram, our backup stopes would have been located on the 1285 level at Kura, But that top access for Evolca in the 1305 level was not yet completely developed and that really comes down to below budget development rates For several quarters during COVID, which we've shown previously and you saw in our operating results. So as a result, the mill feed was supplemented with lower grade material from underground as well as some low grade stockpile material that we maintain. I think it's important to highlight firstly that we do intend to mine this area in the future. So it will come back into our production And that when we introduce PACEVIL, which is part of that Stage 3 expansion that will provide a big boost I think for our scoping sequence, it's also important to highlight that JAD has extremely good deal technical conditions, and we've not experienced Any areas with localized challenges there. And we're now developing the 1305 level in Judd.

Speaker 2

And so we will have multiple large stoping areas going forward, as you can see in this diagram. So I think importantly, we are following our scoping sequence for 2023 plan, which does drive our guidance. Looking at the underground mine performance for QT, moderately impacted first half of April due to the challenges noted in the previous slide. However, since then, the mine has been performing well as doping sequence has set ourselves up for a strong second half of the year. On the process plant front, as previously mentioned, there were a total of 8 days of unexpected planned downtime.

Speaker 2

Now that was due to a mill trunnion bearing failure And a limited electrical fire in a cable tray in the west section of the plant. Pleased to report that post those plant has performed extremely well And in fact, has set new records on the throughput front. I think it's also important to highlight that we see the underground mine continuing to Strengthen as the year progresses, there are multiple positive factors driving this. Firstly, our development rates have been very strong For each of those last two quarters, each one being a new record, and we see that very much as a leading indicator. Secondly, we've received key pieces of equipment already this year to date and more expected going forward, and that provides a boost to our capabilities underground.

Speaker 2

We'll show some photos later in the presentation on that. And then lastly, after commencing underground development of the Twin Incline in 2020, We expect to mine the 1st ore tons from the lower mine in Q4. Now that is well ahead of schedule and that's been driven by Strong advance rates in between inclined. So ore tons from this area were not planned until 2024. Now we will actually see our first tons coming out in 2023.

Speaker 2

So that establishes a major mining front of debt and Supported by obviously the large and very efficient infrastructure. I'd also like to highlight that the localized area of Challenging geotechnical conditions that we faced in Q1, there is also an opportunity there for us. And as much as the subparallel structure is mineralized, It's not currently in any of the mine plans in the DFS or PA and potentially provides us with a significant upside in throughput. So we're working with our own people and consultants to determine its resource potential and the best way to unlock it through the mining. Lastly, I'd like to reiterate the K92 has a significant plus 5 year track record of mining and expanding operations.

Speaker 2

Long haul stoping commenced in early 2020 and has been successfully executed and ramped up. We maintain our outlook for Production to be within our guidance range, albeit in the lower half. So I'll now turn over to our Chief Financial Officer, Justin Blanche, to discuss our financial results for the Q1.

Speaker 3

Thank you, John, and hello, everyone. During the Q1 of 2023, We had revenue of $40,400,000 a 23% decrease from prior year. We sold 17,602 gold ounces at an average selling price of $1807 compared to 26,471 ounces at an average selling price of 17 in the prior year. As at March 31, 2023, there was 3,292 gold ounces in inventory, including both concentrate and dore, A decrease of 320 gold ounces when compared to December 31 due to timing of sales. Q1 2023 cash flow from operating activities Forward changes in working capital was 16,500,000 compared to 22,500,000 in the same period prior year.

Speaker 3

As of March 31, 2023, we had $88,600,000 in cash and cash equivalents. The decrease in cash and cash equivalents when compared to December 1st is primarily a result of spending 12,700,000 on expansion capital, decreasing our accounts payable other than land owners accrual by a net 7,300,000 and increasing our mine supplies, consumables and fuel by a net 3,000,000 during the quarter. As at March 31, K92 had one of its strongest reported working capital balances of $117,300,000 despite record expenditure of $23,500,000 for property, plant and equipment during the quarter. Further, as at March 31, receivables had increased $28,500,000 and accounts payable had decreased to $29,800,000 from $37,000,000 The company has no debt on the balance sheet. Q1 cost of sales was $23,700,000 compared to $22,500,000 in the prior year or $16,700,000 compared to $17,700,000 when you exclude non cash items.

Speaker 3

Despite an overall increase in cost of sales, With ore tonnes mined increasing from 100,124 in Q1 2022 to 117,800 65 in Q1 2023. As John mentioned, during the Q1, the Kanantu Gold Operations produced 17,593 ounces of gold, £1,651,297 of copper 29,859 silver ounces or 21,488 ounces of gold equivalent. We sold 17,602 ounces of gold, £1,538,590 of copper and 29,164 ounces of silver. We incurred a cash cost of $7.58 and an all in sustaining cost of $15.06 per ounce of gold, which was significantly below our selling price of $1807 per ounce. Our Q1 cash cost per ounce of gold increased to $7.58 from $5.36 in Q1 2022.

Speaker 3

The increase in cash cost was primarily due to the lower head grade material compared to prior year, as John mentioned. Our Q1 all in sustaining cost per ounce of gold increased to $1506 from $7.88 in Q1 2022. The increase in cost per ounce, in addition to the lower head grade material, can be attributed to the 11,200,000 spent on sustaining capital as compared to $5,000,000 in the same period prior year. The increase in sustaining capital is a result of Increased capital development when compared to prior year as well as replacing some equipment during the quarter. It is important to note That after commissioning the Stage 2 plant expansion in late Q3 2021, we have seen a significant compression in our total unit cost per tonne processed.

Speaker 3

We continue to see downward pressure on costs via economies of scale as operations ramp up. I will now turn the call back to John to continue with the rest of the

Speaker 2

Thank you, Justin. So for the exploration and growth section, we begin with the Kanantu mine strategy growth pipeline. On Stage 2a, we're pleased to be in the final commissioning stage with the last item being the rougher flotation currently being wet commissioned. Stage 3, we've made considerable progress on the tenders. We'll be awarding the various long lead items by the end of the month.

Speaker 2

We're currently out on tender for the EPC for process plant and the pace fill, and we'll be looking to award these by mid year. After completing that tender process, we plan to release a growth capital guidance update and schedule update. Next lift on the tailings dam has already commenced. That's well ahead of what is required and it's already 20% complete. Now the video that you see here was taken last week and that's the wet commissioning of the stage to a rougher flotation circuit expansion.

Speaker 2

So that expansion an additional 2 cells, but those additional 2 cells are far larger than the existing cells And that more than doubles our rougher capacity. With these commissioned, we believe we'll see 1, 2 percentage point at least improvement in our recovery as well as providing us with potentially further ability to increase our throughput. Over the last few months, we are obviously pleased to have received quite a number of pieces of key equipment, underground equipment. This particular image shows our new jumble in action that arrived in the Q1. We've got another jumble to midyear And then a third new one is then due before the end of the year.

Speaker 2

Also in Q1, We received a new long haul rig, so that's our 2nd long haul rig. And so that's an important addition because obviously it doubles the size of our fleet, provides us with greater flexibility and ability to steadily grow our drill stocks. During the quarter, Other equipment arrivals included a new lawyer as shown here, 2 integrated tool carriers, cement agitator, Normet charging machine. That equipment is designed obviously to expand our fleet, improve our productivity by replacing some additional equipment as well. More equipment is on the way.

Speaker 2

The 2 cat trucks you see here, they are currently on the water between Brisbane and Leh, And we expect these to arrive in country by the end of the month, so that significantly enhances our truck fleet. So now on the Twin incline, The furthest incline has now achieved 2,315 meters as of the end of April. So that's a couple of weeks already ago, And that's tracking well ahead of schedule. Incline development is now something like 80% complete. And as you can see from the diagram, The Twin Incline advance is now getting very close or in fact it's within the Cora Judd deposits.

Speaker 2

Q4, we actually plan to commence mining from the lower portions of the Kora resource from the Twin Incla, which is well ahead of schedule. That was only planned for next year and it's a result of the Twinin client being significantly ahead of shift as we've mentioned. Importantly, it creates a significant boost to our operational flexibility as we're now establishing a new mining front at depth and obviously located in that new infrastructure area. In terms of the main field exploration, drilling is underway at Kora South, Jug South, Northern Deeps and shortly it will be Kora Deeps. We're now looking at a long section here of Kora Kora South And to date, we've defined a potential strike length of something like 2.65 kilometers with exploration From the surface focusing on Cora South, underground exploration is targeting Cora, Kora, South and as I mentioned imminently Kora Deeps.

Speaker 2

With the twin incline significantly advanced as shown by the arrow here in the diagram, We're in the process of moving a second diamond drill rig into the Twin Incline, and that drilling is to advance basically from north to south. And obviously, this is one of our most highly prospective targets and importantly is within the mining lease. So it's adding ounces that are within the mining lease. Additionally, Cora South, Judge South drill drive has made significant progress advancing to the south. Drilling is underway from that drill drive and We're certainly excited to be testing that down dip extension of Culver South from underground, including importantly that by latents on We've reported previously and you can see some of the numbers that we've had there.

Speaker 2

When we look at JAD, JAD South, again, shown in the long section. Today, we've defined something like 1.7 kilometers of strike length. Judd South is open in multiple directions. Unlike the core at Kora South, we've intersected mineralization with almost every drill hole today. Again, like the core at Kora South, The advancement of the underground infrastructure is opening up partly perspective drill platforms to explore at depth.

Speaker 2

We plan to provide exploration update of our vein drilling later this month. On the porphyry exploration, After announcing that the maiden Blue Lake inferred resource of 10,800,000 ounces gold equivalent or £4,700,000,000 copper equivalent, Which is the 5th largest known porphyry in Papua New Guinea, we have now got drilling underway at A1. A1 at this point in time is our number one porphyry target based on our airborne advanced mobile MT2 physics, which was flown in late 2021 and also from our surface mapping. As you can see from this image, A1 is interpreted to be part of the same large lithoCat complex that hosts Blue Lake and also the Ayena target. So we're currently drilling our second hole at A1 and look forward to providing an update on that in due course.

Speaker 2

So with that, operator, we'd like to commence the Q and A session. Thank you.

Operator

Thank you. We will now begin the question and answer session. We will pause for a moment as callers join the queue. Our first question comes from Alex Terentiew of Stifel. Please go ahead.

Speaker 4

Hey, good morning, everyone. Just a couple of questions from me. First, I know that the mill capacity, pardon me, is the ultimate bottleneck. But when it comes to the mining, the lower levels that you can Low levels of the mind that the incline is going to connect to in Q4. How should we think about the production potential from that incline As we look into 2024, I'm just wondering, do you have the equipment and the people?

Speaker 4

I know we're still talking 6 plus months away, I'm just trying to get a sense of what mining rates we could see from the mine on an overall basis once you guys get into that zone.

Speaker 5

Okay. You said a couple of questions. Alex, was there another one?

Speaker 4

Yes, sorry. Yes, the other one is just more on the Phase III expansion. Just wondering if you can give us some color on timing of that spend over the next couple of years. I know a lot of the cost is development and you guys are spending as you go along on that. But just kind of just trying to think of spending over the next 2 years as we It was something to kind of put into our model to better forecast cash flows.

Speaker 5

Okay. Thanks. Thanks, Alex. Look, in terms of the 1st of all, the capacity from So lower levels coming out of the TwinInk line, I guess there's a couple of things that are important there. 1, as we reported, we do have now a second long haul rig.

Speaker 5

So we actually have an ability to operate in 2 different areas in the mine in terms of stopping. And that's only recently happened, that's only in the last quarter. As I said, right now, there is nothing in the schedule at all for tonnage From that lower level. So right now, we just don't have An actual schedule of what we would mine. Realistically, you're opening up a new area.

Speaker 5

You've got to do development along strike. And of course, you've got to develop Multiple headings within the actual ore bodies themselves. So we're not looking for a lot of tons this year. Quite frankly, if we got 10,000 tonnes are there by its out of it in the Q4, that would probably be a reasonable number. Next year, the vast majority of our tons come from the existing mining areas, that's both Kora And, Judd.

Speaker 5

And I certainly wouldn't see more Then around 20% of our tons tops coming out of that lower area, and that really would be the top end of our expectations. As you said, ultimately the plant right now is our bottleneck, But it seems to be an expanding bottleneck. And quite frankly, the plant continues to surprise us with its With the capacity that we are getting from it and certainly it's something that we're going to be looking at in our budgeting process Next year. In terms of the Stage 3 expansion spend, As we've said, we will give guidance on that Around the end of this quarter, we've got the tenders due in, I think, actually next week. I think we have A series of calls to tenders next week going through that detail.

Speaker 5

So we should be able to provide Some detail to assist with the cash flow models by the end of this quarter, but obviously there are Two aspects. One aspect is ongoing sustaining capital. And I think we've given guidance, I think, or it certainly comes out of the studies That you've got around $60,000,000 a year over the next 4 years for your sustaining capital. And I think it's reasonable to be modeling that simply on a quarter by quarter basis, equally split. In terms of the expansion capital, We expect it to follow a classic S curve as you would for any of the solar project, But the detail of that, we'll only really be able to provide end of the quarter.

Operator

Our next question comes from Ovais Habib of Scotiabank. Please go ahead.

Speaker 6

Thanks, operator. Hi, John and Canine 2 team. Just a couple of questions from me. John, starting off with my first question is Just on underground development. You recently received a new equipment jumbo and you received an additional jumbo and loader.

Speaker 6

You're expecting to receive an additional jumbo on LOTRA shortly. Two parts over here. Is there a specific Underground development rate that you are targeting, and what do you need to get there? Do you need additional equipment? Do you need additional people?

Speaker 6

And second part of this question is, how many stopes are you currently mining from and preparing versus where you need to be

Speaker 5

Okay. So I guess, first of all, in terms of The underground development target rate, the target by the end of this year is to be Developing approximately 1,000 meters a month. And we've scheduled Our new equipment to be able to meet that schedule. So right now, we're running at around $800 a month And the current equipment obviously is sufficient for that. As was mentioned, we've got an additional twin boomer coming in and that Together with the second one, I think we've got coming in the 4th quarter will give us the ability to get up to our 5 nanometers Plus a month.

Speaker 5

I think in the original studies that was about the level That we needed to get to, but we are looking at getting up to around 1200 a month next year, Simply to catch up on those meters that we dropped during COVID. And so, we will have, I think, 1 or 2 additional twin boomers coming in next year as well and other equipment. And I think we've got our first we've placed the order for our 1st larger Scale equipment, which is a 21 ton loader versus a 17 ton that we're currently using. And we've also, I think, ordered our first of our larger trucks, which are the 63 ton trucks as opposed to the current 45 ton that we're running. So we are Also looking at scaling up as the TwinInk line comes into production.

Speaker 5

In terms of a number of stopes, I mean, currently, we have, I think, 4 stopes that were mined In Judd during the quarter, and I think we had 3 stopes that were mined for Cora. And that actually is sufficient for 500,000 Tons per annum, that is sufficient for a bit more than that when you bring in your development tons. So, we'll be running with the same sort of number. And I think if you look at For the balance of the year, I think we've got about 9 stolts of various sizes coming out Of Judge, Cora only has 5 or 6 depending how you define them Coming out, but they are significantly larger stops than the stops that we've got planned

Speaker 6

So John, just and really thanks for that color. Just in terms of the Dollars that you're looking to spend, let's say, in terms of catching up on development this year, would you think based on the equipment that you have and based on the people that you have, You'll be able to spend that or do you think that's going to be a spinning over into 2024?

Speaker 5

An interesting question actually, Orest, because certainly some of the capital spend that we had planned For 2022, it did spill over to 2023, but in the main part that was capital, although there is Obviously, because some of the development within sustaining capital, some of it did spill over. I think at this point in time, when we look at what we budgeted in terms of our sustaining capital, We certainly have the equipment to be able to achieve what we've set out to do. We have been recruiting some of those key areas, twin boomers, for instance, And we have been successful at recruiting those. So At this point in time, our expectation is that we will spend the money that we've said we will this year, And we will continue to spend it at that rate over the next couple of years. I think importantly, There's a couple of things here that are perhaps important.

Speaker 5

1, the twin incline, which has obviously been going for a couple of years now, Actually gets to the end of the mining lease, I think it's this year, Late in Q4, maybe over to the 5th quarter depending on how we focus on our ramps Going up and down. But we've been spending in excess of $1,000,000 a month on those twin inclines. And that's very much coming to an end. There are other things that we're doing obviously, including the internal ramps to connect the twinning lineup. But that's been obviously a major expenditure for the last two years, 2.5 years.

Speaker 5

So you'll see sort of expenditure in that area Dropping off, but obviously that means that we're focusing on development in other areas.

Speaker 6

Perfect. John, just my last question then, just moving on to the Twin Incline then. I think you answered part of my question in the previous question that was asked. So Twin Incline seems to be ahead of schedule and that continues to be ahead of schedule. And you're looking to mine the first ore at Cora, I believe in Q4.

Speaker 6

Now will the processing of ore from this area get you back and up towards that midpoint of guidance? Or are you still kind of guiding towards the bottom end of guidance based on how things are progressing in Q1 and Q2?

Speaker 5

Look, I think from our perspective, we would say Our expectation is it will be in the lower half of guidance. We are we're certainly scheduling from our own perspective That we achieve our tonnages, which basically is for this year, we had Budget 500,000 tons per annum and that is where we're guiding at this point in time. Is it potential to push more tons? Obviously, there is. But at this point in time, we haven't built that into Our wattage for the second half of the year.

Speaker 6

Got it. Thanks for that, John, and great color. Appreciate it.

Speaker 5

Thank you.

Operator

Our next question comes from Arun Lamba of TD Securities. Please go ahead.

Speaker 6

Hey, John. I think you answered The first part of my question when Alex asked just, did I hear it right? You said you expect to release results of the tender process by the end of this quarter. And then the second part is just, is that around the time we also expect potential credit facility announcement?

Speaker 5

Thanks, Harun. Yes, we expect to Award tenders by the end of the quarter. As I said, I think it's next week, we're due to go through them with the tenders. In terms of credit facility, We're targeting the same sort of timeframe. Personally, I think it will probably push out to the 3rd quarter In part because it will probably be a consortium and we're actually looking Bring in PMG Bank into their consortium, which is something that has not Been done before.

Speaker 5

The local banks, Kiena Banks have not historically been involved in the resource industry. And we've actually been approached by them to be part of a revolver type structure. And that's something that we're actually quite keen to do from a couple of reasons. One is that it involves Then more

Speaker 7

of the

Speaker 5

P and G business community in our business, which we think is important In making it robust and inclusive. And secondly, from a political perspective, That would be, I think, extremely positive for the government and it would be a good message That local business, local finance can be involved With multinational companies, which is there's a capacity building aspect to that, which is really important for That's local financial business and also for the government.

Speaker 6

Thanks. That's it for me. Thanks John.

Speaker 5

Thank you.

Operator

Our next question comes from Andrew Modychuck of BMO Capital Markets. Please go ahead.

Speaker 7

Good morning, John. Thank you very much for going over that in great detail. Just two questions. I realize that Part of the answer to the first one is this Q3 CapEx update. But generally, can you just reconfirm the concept That cash flows plus a debt facility is the targeted financing plan for Phase 3?

Speaker 5

Yes. So thanks, Andrew. In terms of coverage covering our CapEx requirements, sorry, Both in terms of sustaining capital and expansion capital, that fairly much comes from our cash flow. We have also, as we said, putting in making arrangements to put in the revolver facility. That's That's more than anything else to ensure that we maintain, for instance, the sort of exploration expenditures that we've committed to this year and we're able to Continue to commit to it in 2024 and 2025 and if anything, be able to look at expanding That's spent.

Speaker 5

So yes, very much if the question is sort of more design of Is there an equity component required for all the things that got planned? The answer is that there is no equity requirement, no.

Speaker 7

Thank you. And then just secondly, there was discussion of continuing Unit cost improvement that you saw in Q1 extending into the year as throughput comes up, Can you characterize what you're seeing on the ground in terms of unit or consumables, maybe inflation? Are your unit cost savings outstripping any inflation you're seeing? Or are you seeing some savings from kind of geeks that we saw Previously on some of these consumables and costs that you guys are subjected to.

Speaker 5

Yes, that's a good question because it is a bit of a mixed bag, Andrew. We certainly are not seeing the pressures that we saw last year, Where it seemed that many of the areas, including, I think one of our highest was in explosives, where there were significant increases that came through in explosives. We're not seeing that sort of pressure coming through. I think our labor costs We're up about unit labor costs that were in terms of what we pay our people were up about 5%. Overall, our labor cost per ton went down because we're simply doing more tons.

Speaker 5

As you know, you don't have to expand your workforce I commensurate number to the amount of tons that you've increased by. So certainly when we look at the Q1, We saw spend in almost every area in unit terms of cost per ton Come down. Important areas would have been processing, I think, was probably the lowest cost We recorded finance and admin down significantly, Maintenance also down significantly. General administration was also down. So we've seen significant downward pressure, which As you alluded to, a lot of that, of course, is simply that we are increasing Our tons mined and our tons processed, and we obviously expect to see those economies of scales, and we are seeing them come through.

Speaker 5

I would say that inflationary pressure in terms of the consumables that you are buying

Speaker 7

Great. Thank you very much for those comments, John. I'll pass the microphone to the next speaker.

Speaker 5

Thanks, Hendrik.

Operator

Our next question comes from Chris Thompson of PI Financial. Please go ahead.

Speaker 8

Hi, good morning team. Thank you very much for taking my question and thanks all the details and your answer to every all the other questions asked. Just a quick question,

Speaker 5

I guess, A lot of

Speaker 8

my questions have been answered. But just going back to the plants, is there any time lines for the completion of the commissioning there?

Speaker 5

Chris, when you're talking completion of commissioning, you mean the new roughness?

Speaker 8

The new roughness, that's right,

Speaker 5

Yes, we I mean, we expect to have them fully operational by the end of the quarter or before the end of the quarter. It's not It's not a big section really. I'll be on-site later this week And I expect to see them while I'm there, I certainly We would be expecting to see them start being integrated into the flow sheet on a pretty much full time basis, So certainly by the end of the quarter.

Speaker 8

That's great. Thank you very much. Thanks.

Operator

This concludes the question and answer session. I would like to turn the conference back over to John Lewins for any closing remarks.

Speaker 5

Thank you very much, operator. Thanks everyone for your participation this morning. I think when you look at this past quarter and this Start to the year. Without doubt, it has been one of the challenging ones for us. We've had a number of areas where obviously the performance hasn't been What we've been looking for and what I really I think is important From our perspective is that we've had those, we've faced them, We've got over them and we've shown ourselves able to handle those and move forward.

Speaker 5

And I think operationally, we come out the other end stronger and more focused On areas where we need to improve, and I think that's both from a corporate level and from an operational level. I would perhaps like to Just reflect on also the fact that we saw the passing of Our Chairman, who has been the Chair of the company since we started Tukey Angus and I know that a number of people on the call Well, that is a celebration of life just a short while ago. It was a rather Exuberant, almost a celebration of life, and I think it reflected very much the exuberance of our Chair. So I would like to reflect on that and reflect on the contribution that he made to this company. And maybe finally, while not directly linked to the quarter, As we mentioned during the presentation, We did have an accident, which was outside of the mining lease, but nevertheless, was 2 of our people who unfortunately We're fatally injured in an accident and again reflect on that.

Speaker 5

And certainly, It's impacted us. I think we are a team and a family and that That's impacted a lot of people within the organization. It's also I think for us, it's made us again Refocus our energies in that safety area and look at how we can do things better To the family, friends and the colleagues, condolences for those losses. We certainly look forward to the balance of the year with a positive mindset. We have actually achieved a lot during the quarter.

Speaker 5

We did hit quite a number of new records And it gives us good energy for the balance of the year going forward. As I mentioned, I'm heading out to site later this week and looking forward to Spending a bit of time there and seeing how things are progressing. So with that, Again, thank you all for participating in this call and Stay well. Thank you.

Operator

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

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Earnings Conference Call
K92 Mining Q1 2023
00:00 / 00:00