This interview originally appeared on the Outsider Club website on July 21, 2016. Click here to view the original.
Publisher's Note: Below is a recent interview I conducted with Ian Stalker, CEO of K92 Mining (TSX-V: KNT)(OTC: KNTNF). I first recommended K92 to members of Nick's Notebook when it was still a private company. We got shares at C$0.35 with warrants to buy more at C$0.50. K92 Mining now trades at C$1.50. We're up some 320% on our first position. (Click here to see how to get access to deals like that.) But there is much more to come from K92, as you see in the interview below. Not only is it about to restart a low-cost mine just at a time when gold prices are rising, but there is also significant potential for processing increases and exploration upside. Below, CEO Ian Stalker outlines a case for another tripling of the company's market cap from here. Enjoy.
Publisher, Outsider Club
Nick Hodge: Hi, this is Nick Hodge, the founder of Outsider Club and the managing director of Early Advantage and Nick's Notebook. One of the gold companies I've been recommending lately is K92 Mining (TSX-V: KNT)(OTC: KNTNF), so today on the phone we have Ian Stalker, who is an international mining executive with 40 years of experience in mine development and operations. He was the CEO of Ura-Min, which was listed in London and Toronto until being bought out in 2007 at $2.5 billion dollars. He was also vice president of Gold Fields, which is the world's fourth largest gold producer. He brings a lot of experience to the management team of K92.
K92 is what we're talking about today. It's a gold mining project in Papua New Guinea. This company, K92, is a company that members of Nick's Notebook funded at C$0.35 cents and then again at C$1.00, and it's also become a recommendation of Early Advantage. This was a project formerly operated by Barrick. Barrick bought the project for US$145 million dollars, and then spent US$141 million dollars developing the mine. K92 was able to buy it for $2 million dollars plus payments of $60 million depending on certain reserve and production milestones.
Mr. Ian Stalker, it's a pleasure to have you on the phone today. I was hoping you could give us a brief update on how the project is going and how the progress is going towards restarting operations there.
Ian Stalker: Delighted to do so.
Nick Hodge: Let's start right there. K92 was formed solely to acquire the Kainantu asset in Papua New Guinea and bring it back into production. Barrick spent a lot of money there building a mine and some underground operations, so you guys had a running head start to begin with. How's the restart going?
Ian Stalker: Nick, it's going very well. On the ground, we have achieved all the milestones that we set and the agreement between ourselves and the largest investor who funded us through to production, which Cartesian out of New York. We set some pretty tough milestones in terms of getting the plans re-ready, but I'm delighted to say that as of today we have load tested the entire circuit of the process plant successfully. We're in a position there now to start receiving ore from underground. That will start arriving this month of July, building up obviously in quantity as we push through August, September, and October, and we hope by the end of the year we should be in a nice steady state of operations from the Irumafimpa mine.
The first concentrate, which is what we sell as our finished product from the mine, it's a gold concentrate from a flotation circuit containing a little bit of credit for copper and for silver, we think will be dispatched end of August, beginning of September. So looking good on the ground.
Nick Hodge: That was my next question. When do you expect the first gold production? We're talking really in the next two to three months you expect the first sales of concentrate.
Ian Stalker: Very much so, Nick. Obviously our attention now is on pushing hard on the underground setup. What we inherited, as you're well aware, was a mine that was already pre-developed by Barrick, and a significant upside associated with it because of the work that Barrick themselves had done and never got the chance to bring into total fruition for their efforts. We're pushing hard now because what we've found, Nick, is there's quite a bit of upside in the plant capacity. For example, on the crusher sanction, we were surprised to find that once we'd put in our modifications, we were able to get roughly a hundred tonnes an hour through that part of the plant, whereas previously we were expecting something around thirty, thirty-five tonnes an hour. Because we now know we've got that extra capacity that pushes on for underground, not only to deliver on schedule but to let's see what else we can get out of it in terms of upside on production quantities.
Nick Hodge: What else can you tell us about the project? Can you discuss the economics of the project a little bit? Maybe a little bit about your cost per ounce and what the net asset value or the IRR of the project is?
Ian Stalker: Let me start, Nick, by just confirming for you and for your associates that one of the advantages we've had on this project is the knowledge that existed from its previous operations. That was a great starting point. Most mines, when they start, start from a definitive feasibility study, which at the end of the day is still just a desktop study based on a limited number of sampling. We've had the opportunity of seeing this mine in operation for a period of time, albeit a relatively short period, and we've learned a lot from that. You could not get a bigger sample. As a result, information such as cost, production, dilution, performance statistics, we're managed to relate to what has happened previously. We've not tried to reinvent the wheel. We've not tried to over-promise on quantities and statistics such as costs. We've kept it very, very conservative in the way we've gone forward.
As a result, when we talk about cost, Nick, we've got an opportunity from Irumafimpa delivering one ounce of gold to the market place at approximately $600 per ounce, all in sustaining capital. The Irumafimpa mine, the restart mine, which is the one that's developed, gives us a minimum of two and half years production, but an opportunity if we choose to take it to go for a longer period up to five years. The reason I take a little hesitation on saying if we choose to take it, is because as part of our operational startup, we are driving the main access which takes us into the existing mine across to the next ore body, which is known as Kora. The big advantage for us in Kora is that the ore body is significantly bigger in terms of width of the various veins and reefs, which means the productivity when we get to Kora can be significantly enhanced, and our cost can even come down from this pretty impressive $600 an ounce.
We expect, for example, to be in Kora, in terms of access in the lower regions, by the end of 2017, beginning of 2018. The way this year has gone so far, we're now in the middle of July, the seventh month, that's not a long time to think about. If we get to Kora in that time, what we're beginning to examine now as an option for us is the opportunity of bringing the lower part of Kora in and by utilizing that, moving our production numbers from about a 60,000 ounce average performance up to a 100,000, to maybe 120,000 ounces per year. Significant change in really a short term. I think it's one of the opportunities that our little company, K92 Mining (TSX-V: KNT)(OTC: KNTNF), offers to not only or sales as the management running it, but to the investors coming in as well, Nick.
Nick Hodge: Is that an either/or proposition? It's by the end of 2017 you decide whether to stay in Irumafimpa or to go to Kora? Or can both be done?
Ian Stalker: Both can actually be done because as I was saying in my earlier remarks here, we've had the benefit of now seeing that the plant, the process plant, is reasonably flexible in further production capacities. There's not a lot to be done to enhance that process plant capacity. Very limited. Possibly two, maybe three million dollars. Not a lot, that's for sure, and quickly. The space and the power, etc, all the infrastructure, is there to do it. When we get into the Kora situation, yes, you're quite right, it's an either pushing hard in Kora, but quite likely the option of keeping Irumafimpa, going for a little bit longer and supplementing it with Kora until the full development is in Kora, which is a year or so later.
Nick Hodge: At which point we're talking about, as you say, some 120,000 ounces a year potentially?
Ian Stalker: When we fully get into Kora, in fact, Nick, the opportunity for us, because of the width of these ore bodies as I mentioned, is that Kora alone, based from the studies that we've done, and that will be ... There is a major study now being progressed with our mining consultants, but on Kora alone, the evidence we've seen today, it suggests once we're there, potentially, Kora, on its own, fully developed, could be delivering up to 200,000 ounces per year.
Nick Hodge: Wow. That actually leads into my next question perfectly. Kora, as I understand it, is still open at depth. There's been a few holes plunked down there that gave you guys some good results, some good historical results that you have data on, but how excited are you about the exploration upside for Kora?
Ian Stalker: We think it's, you know, if anything in this world is a given, we think the opportunity of expanding the Kora resource is, in fact, a given. I say that with inverted commas as you can imagine because nothing is ever for nothing. We have to do the work. As I mentioned, as we progress through from that underground drive, taking us from the Irumafimpa mine over to Kora, we will be moving forward with infill drilling in the next twelve months to allow us to fill in the gap between Kora and Irumafimpa at the existing level, start to look at that, as you mentioned, at the deeper opportunity, because there are a few holes in there that suggested that that ore body can extend down to at least a kilometer for surface. Then even the extension further along toward the west, so really Kora I think, although we've got the best part of two million ounces in resource at the moment, really has a significant opportunity, and one that certainly geologists such as Doug Kirwin, who's a renowned geologist from experience and performance in the mining industry, are telling us that we should quite likely get somewhere in the region of 6 and maybe possibly 8 million ounces from that environment known as Kora.
Hey, it's hell of exciting. As I say, we've got the production statistics to match it. When we get up to those production levels, I would expect, and I don't think it's unreasonable to say that the cost per ounce will come down.
Nick Hodge: Yeah, I mean, so you're talking about the tripling or quadrupling of the resource, plus a reduction in costs?
Ian Stalker: Correct. I think it's also interesting to note that going forward, the Kora ore body is not quite predominantly gold, as we've seen at Irumafimpa. Irumafimpa is a gold deposit with a little bit of copper stroke silver in the background. When we hit Kora, the copper goes up to two percent in-site as a grade, the silver goes up to plus 30 grams per ton (g/t), so it means that the concentrate we make will be a mixture of gold, silver, and copper. The way the market is looking, gold is pretty hot and spicy anyway but copper is not a bad secondary product to have either. I think we've actually got ourselves in a nice position from the range of metals coming out there, both two precious metals and copper means that I think we're pretty well set for a pretty spectacular performance here from ourselves.
Nick Hodge: I agree. You want to help us maybe understand how you see the value proposition of K92? Right now you have something like 75 million shares out, they're trading right at about C$1.00, that gives you guys a market cap of just around C$75 million. We know that Barrick spent about US$300 million just buying the project and putting in the base camp and the underground work and some of the infrastructure. That's several times what K92 is trading for on its own, just for Irumafimpa. When you add in Kora, when you add the copper credits, the silver credits, what do see as value in your mind for K92?
Ian Stalker: Quite frankly, as you know, I accept that I have bias written all over it because I am the CEO of the company, but I believe K92 is very comfortable a C$300 million market cap company. Not only have we got this projection moving as into Kora, giving us, in the short term, giving us a 100,000, maybe a 120,000 ounces. In total, we've got, even now, two million ounces of compliant resources. We've got historical resources from the previous Barrick operation in veins that are associated with the structures that we see in Irumafimpa, and will come into compliant figures within the next 18 months.
Even without Kora we've got the opportunity of moving our total resource package up to three and a half, maybe 3.8 million ounces. You start looking at that number, the performance statistics, the cost per ounce with some of those comparables out there, Nick, and you can see when I say C$300 market cap, it's not an unreasonable comparison. We are in Papua New Guinea, and I think you can either pick the box or cross a box Papua New Guinea... Some people like and some people don't. It's the nature of the business we're in.
When I compare it from my history of working in Africa, particularly West Africa, and I look at some of the comparables there, we own 100% of the mine. There is no government free carry. We have a royalty of 2.5% that's been fixed for some considerable time. We are in a country where you can see the infrastructure is improving dramatically. Airports have been rebuilt and rehabilitated. The roads, particularly the one from Lae, the second largest city in the country, to our mine site is being relaid as we speak and is in great condition by comparison to what I've seen elsewhere in, say, West Africa. Things such as the world ladies under 21 soccer tournament was held in Papua New Guinea. It's not a country that you should be fearsome of. You should be aware of and be appropriately managed to ensure that you understand the cultural issues, etc, exist there. Taking all those accounts, taking the quality of the project from a technical aspect, taking the management that's in place to unlock the value, looking at the country, and looking at those and comparing them with some of those other market caps out there, I think the number that I've quoted in this interview, Nick, is a reasonable target for us, short term.
Nick Hodge: I agree with you as well. It's one of the reasons I jumped on the opportunity so early and continue to be a supporter. The point about the jurisdiction is an important one. Some people turn their noses up immediately at locales like that, but as you say, Papua New Guinea has been safe. They just had a soccer tournament there as you mentioned. As far as I understand it, you all have had no problems since you've been redeveloping the project so far, right?
Ian Stalker: Yep. Look, I have to say we've had great support from the mining industry and the mining regulatory of bodies. In fact, the mining regulator authority, MRA, are one of the most efficient and proficient that I've worked with throughout my forty year career.
Nick Hodge: Very good. Last question is you guys are currently conducting a C$5 million raise. What will your coffers look like after raising this C$5 million and how do you plan to spend that and how long do you think it will last you?
Ian Stalker: Well, at the end of this C$5 million raise, we should be sitting quite comfortably with about C$8 million in the account, which is nice because remember, the funding that we had done up front was sufficient to take us into production and then see the cash flow thereafter. That little war chest will give us the opportunity of looking in detail at some of those upside criteria that I've mentioned in this interview, Nick. Really looking at how we unlock Kora and can we get there faster, and what do we have to do in order to get the plant, process plant, and the mining to a rate that's appropriate. It'll be well used, I can assure you of that.
Nick Hodge: Perfect. Mr. Ian Stalker, CEO of K92 Mining, it was a pleasure speaking to you today. Thanks for taking a couple minutes out of your day to tell the readers a little bit more about K92 Mining (TSX-V: KNT)(OTC: KNTNF) and the operations at the mine there.
Ian Stalker: You're more than welcome. Thanks very much, Nick.
Nick Hodge: Thanks.
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