K92's One-Two Punch: Near-Term Production at High-Grade Irumafimpa, Exploration Upside & Ounces at Kora

September 8, 2016

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is Bryan Slusarchuk, president and director of K92 Mining. Mr. Slusarchuk has significant international experience structuring, funding, and operating companies involved in mineral exploration, development, and production. He structured complex debt financing transactions in the US, Canada, and Europe, with multiple top tier banks. This includes negotiating and securing the first ever funding of a mineral exploration company by the European Bank for Reconstruction and Development, the EBRD. A little background on K92. K92 Mining (TSX-V: KNT)(OTC: KNTNF) is a high-grade, near-term gold producer, which was built with the sole purpose of acquiring the Kainantu asset in Papua New Guinea and bringing it back into production. This was a project formerly operated by gold giant Barrick Gold. Barrick bought the project for approximately $145 million and then spent another $141 million developing the mine.

Bryan, thank you so much for joining me today!

Bryan Slusarchuk: Gerardo, thanks for having me on!

Gerardo Del Real: I provided a brief overview, but for those that aren't familiar with you, can you share with us a little bit more about your background and how you got involved with K92?

Bryan Slusarchuk: Getting involved with K92 was really fortuitous timing. At the bottom of the gold market, when nobody wanted gold assets, we had purpose-formed a team of professionals with backgrounds in mine finance, engineering, geology, to go look for world-class assets; and at a time when Barrick was in corporate divestiture mode and very much had a mandate to sell all non-core assets, we were one of the only groups out there looking for gold. When you mentioned gold a couple of years back, people ran for the hills, and that's why I note our timing was very fortuitous when we formed this team.

My background is in finance, and I've worked on the finance side of the mining industry for more than a decade. The team that we built around this project includes some outstanding finance guys, but also some outstanding engineering and technical team members. The chairman of the company is a fellow named Tookie Angus, who's just a legend as far as merger and acquisition activity goes in the mining space, has a long and storied career. The CEO of the company is a fellow named Ian Stalker who has put more than 10 mines into production from start to finish during his career, although he's perhaps best known for being the CEO of UraMin when it started out as a microcap company and ended up being purchased less than a few years later for $2.5 billion in 2007. Alex Davidson on the team is by chance the former exec VP of Barrick Gold for exploration and corporate development worldwide. Alex was the exec VP of Barrick when Barrick invested so substantially in this project. Doug Kirwin, credited with leading the discovery team at Oyu Tolgoi, and of course, John Lewins our COO, who for the past 30 years has put mines into production around the world. A really solid team on the technical side.

Additionally, on the capital market side we're really fortunate to have Mark Eaton involved. Mark was the former head of global mining sales for CIBC, so it's a really well-rounded team, Gerardo.

Gerardo Del Real: Absolutely, and I don't think it was an accident. I think that the quality of the team speaks to the fact that I don't think it was an accident that you were able to come in and buy this great asset on very opportunistic terms that have translated frankly into substantial shareholder value.

This is a relatively new story to the resource space, but one that has advanced rapidly, in terms of valuation and from an operational level. Can you talk a little bit about the current resource in place and the upside that still exists.

Bryan Slusarchuk: It is unusual in the fact that we only came to trade in late May of this year, yet we're just weeks away from commercial production. The current resource, we have approximately 1.84 million ounces at 11.6 grams per tonne gold equivalent inferred and additional 240,000 ounces at 13.3 grams per tonne indicated. Additional to that 2 million ounces, there's a further 1.3 million ounces that Barrick had in the historical resource category, that we'll look to bring in to 43-101 compliancy. Now, at the end of the day, that's a big, significant high-grade resource to start with, but it's really important to note that the big upside here is through expansion of that already large resource. The resource, in particular deposit known as Kora, is wide open in every direction. Not only wide open in every direction, but it's strongly mineralized at the extent of all drilling, including a hole that Barrick drilled intersecting a big wide cut of gold mineralization, 350 meters below the known ore body, which of course represents a possible extension to that ore body.

Now, how were we able to move so quickly from an initial listing into production? The fact is we inherited substantial infrastructure that Barrick had put in, and its predecessor put in. There was an existing mill and processing facilities, existing underground development, paved road to the site, hydroelectric power to the site, a 350-person camp in place to house the engineering and technical staff, so this was a project that had everything done. It was very much turnkey. We had to come in, do a bit of refurbishment, do a bit of enhancement work at the mill and at the underground; and we're ready to go. As we speak, we're weeks away from production. At the same time, we got two drills on site, drilling in the Irumafimpa and Judd area, and we're fully financed through to the start of production.

Gerardo Del Real: You mentioned Kora, and I want to touch on Kora in just a bit because in addition to the substantial amount of underground operation infrastructure, you also inherited a ton of data that K92 has benefited from, but I'd like to talk a little bit about the production potential and the cost. The all-in sustaining cash cost that I've heard has been in the $600 an ounce range at the mine being developed. Is that correct?

Bryan Slusarchuk: That's what various groups have come up with as a number, and what I can tell you is that, of course, the proof will be in the pudding so to speak. Being so close to being able to announce production start-up, people will see where we're at, but we're definitely targeting that area. We want to be in the lowest quartile cost performance in the industry. Remember, when this mine ran in the past, it operated when gold was at $700, so we wanted to make sure that even though we're very bullish on gold, we wanted a project that would work at $700, $750. That's one of the reasons we were really attracted to this asset after scouring the earth for opportunities in the gold space. With gold now $1300, there's just really substantial upside as we target that type of all-in cash cost performance.

Gerardo Del Real: Bryan, how many ounces per year are you targeting initially?

Bryan Slusarchuk: Initially, we talked in the information circularin 45,000 to 50,000 ounce range. Then we were able to come out and indicate a bit of under-promising and over-delivering when we announced that the capacity in parts of the processing facility were quite significantly enhanced versus our original projections. We would like to be at Irumafimpa in 50,000 to 60,000 ounce level annually, but remember as you alluded to, Kora is additional to that. Kora is a larger resource. It's a wider vein system, so at Kora, we can enhance further over and above that initial 50,000 to 60,000 ounces per year.

Gerardo Del Real: That leads me into my next question. I understand that the direction that K92 is taking the access is toward the next ore body, of course, which is Kora, and you mentioned it's bigger in terms of width of the various veins and reefs. Is there a plan to develop Kora, and what does that look like as far as the timeline, the potential annual production and the cost because Kora as I understand, and as you mentioned, has significant exploration potential?

Bryan Slusarchuk: Irumafimpa is the original deposit that we'll be putting into production, that we're putting into production now. Irumafimpa is a great gold deposit. Irumafimpa is the deposit that operated in the past at $700 gold etc ... However, 600 meters away is the deposit known as Kora. There's an underground incline drive that has started that we will finish between Irumafimpa and Kora. That will give us access to Kora to mine at Kora but also importantly will allow us to drill test from underground set-ups along the way between Irumafimpa and Kora, targeting expansion of this known ore body, looking to expand it both laterally and, as previously mentioned, at depth. Now, Kora is a deposit that's big already. It's high-grade already, but it's strongly mineralized at the extent of all drilling. We're confident we have a great chance to expand it. Once we commence the completion of that incline drive, it'll take us approximately six months to be in the Kora ore body.

Now, what I think is important for people to look at is that we announced the fact that we initiated a scoping study at Kora already to look at production, and this is based on what is known now, no expansion drilling, nothing but what is known now at Kora. A few weeks after we announced the commencement of that scoping study, we announced another study to scope out the potential to double the capacity at the mill, so based on what's happening with that Kora investigation we're now looking at doubling the capacity of the mill. We got a great starter package at Irumafimpa. Then we have the big expansion potential and the potential of production at the large Kora deposit, and further to that, over the longer term, we have a world-class exploration land package. That big, big world-class blue-sky is the reason that Barrick Gold, the world largest gold company, purchased this property and injected hundreds of millions of dollars into it.

I always remind people that just days after K92 acquired this asset, Alex Davidson joined our team. Why is that important? Alex was the exec VP of Barrick in charge of exploration and corp dev worldwide when Barrick did invest hundreds of millions of dollars here, and I think that speaks so indicatively of the technical opinion of the top guys at Barrick about this project.

Gerardo Del Real: You mentioned the scoping studies. You mentioned obviously the near-term production potential, and we talked about the blue-sky exploration upside. How's the treasury looking right now, Bryan?

Bryan Slusarchuk: We're in good shape. Remember when we came to trade publicly, we were fully financed through to production. Since that point, we've had approximately $19 million come into the till. That was via financing that was conducted for $12.5 million dollars, a further $2 million dollar financing and the exercise of some warrants; so we're in great shape balance sheet wise. What that'll do is it'll allow us additional and enhanced flexibility as we complete that underground incline from Irumafimpa to Kora with drill testing along the way.

We were in great shape when we started to trade publicly, fully financed into production. However, this additional $19 million now allows us to really accelerate things onsite.

Gerardo Del Real: I want to thank you very much for your time today. What can shareholders and potential shareholders expect in the near future? I know back in August you had a release that kind of outline some of the potential catalysts and a lot of those are coming up. Can you go over a few of those just for newer listeners and readers that may not be familiar with he K92 story?

Bryan Slusarchuk: The big near-term catalyst here: almost immediate start-up of production, commercial production at the high-grade Irumafimpa gold deposit; in conjunction with that, the commencement of that underground incline drive from Irumafimpa to Kora with drill testing along the way to expand the already large resource; further information coming out about the production potential at Kora based on the studies that have now been instigated there. You got a whole lot of drill news to come alongside the production news both at Irumafimpa and along the way to Kora, so there will be no shortage of news releases and catalysts here. We're really fortunate like I say to have raised substantial capital since floating this company publicly.

On the last raise, as most people in the industry know, we had a single investor in the raise, and that was Ross Beaty, who is in his own right a real legend in the space. I think that that speaks to confidence in the business plan and what we're trying to execute, but we've been fortunate not with just his investment but with everybody's investment since going public because what it's given us is the ability not just to execute our original business plan, but the ability to really dramatically accelerate things. So far, the technical team on site has done just a great job of under-promising and over-delivering, and that's put us in a situation where we're on budget on time with the restart of production and, at the same time, with a lot of enhanced optionality as we start to target big expansion of this resource.

Gerardo Del Real: Bryan, I want to thank you again for your time today. It's an exciting time over at K92 Mining (TSX-V: KNT)(OTC: KNTNF), and I'm looking forward to having you back on soon, hopefully, as the project develops.

Bryan Slusarchuk: Great! Thanks so much for your time, Gerardo.

Gerardo Del Real: Absolutely, you have a great day.

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