Earnings call: K92 Mining's Q2 2024 results and expansion plans

K92 Mining Inc. (KNT), in its latest earnings call, discussed the company's second-quarter financial results for 2024, emphasizing their commitment to safety, environmental, social, and governance (ESG) initiatives, and the progress of their expansion plans in Papua New Guinea.

Despite a temporary suspension of underground operations due to a fatal incident, K92 Mining produced 24,347 ounces of gold equivalent in the quarter and maintained their operational guidance for 2024.

The company is on track with its Stage 3 and 4 expansions, which are expected to significantly increase production capacity. K92 has secured a $120 million credit facility with Trafigura and has announced a new off-take agreement, enhancing their liquidity position. The company also highlighted positive drilling results and the development of the Arakompa project, with a maiden resource announcement expected by Q1 2025.Key TakeawaysK92 Mining reported zero lost time injuries in the past 12 months, underscoring their commitment to safety.A total of 24,347 ounces of gold equivalent was produced in the second quarter of 2024.Stage 3 and 4 expansions are fully financed, aiming to increase production to 300,000 and 470,000 ounces per annum, respectively.The company announced a $120 million credit facility with Trafigura and a new off-take agreement.Positive drilling results were reported at various vein systems, with plans to announce a maiden resource at Arakompa by Q1 2025.Expectations for the second half of the year are positive, with increased throughput and slightly higher grades anticipated.Company OutlookK92 Mining reiterated their operational guidance for 2024.The second half of the year is expected to yield better results than the first half due to increased throughput and marginally higher grades.Bearish HighlightsCosts were impacted by a temporary suspension of underground operations following a fatal incident.Bullish HighlightsThe expansions are fully financed through existing cash, cash flow, and credit facilities.Significant mineralization was reported at Arakompa, with drilling results showing promising thickness and grades.The Arakompa project has a large target size, with only 20% of the corridor strike length drill tested so far.MissesThere were no specific misses reported in the earnings call.Q&A HighlightsK92 Mining plans to apply for a mining license covering Arakompa and other areas next year.Discussions are ongoing to potentially modify legislation to allow for the expansion of a mining lease.The company is preparing for the application process by mapping communities and people in the relevant areas.

K92 Mining Inc. is progressing with its significant expansion plans while maintaining a strong focus on safety and ESG principles. With the advancement of the Arakompa project and other exploration activities, the company is poised to enhance its production capabilities and strengthen its financial position in the coming years. The Kainantu Mine transformation and the positive price environment contribute to the company's optimistic outlook, as it continues to navigate the challenges and opportunities in the mining sector.InvestingPro Insights

K92 Mining Inc. (KNTNF) has shown a robust financial and operational performance in the last twelve months as of Q2 2024. Here are some key data points and insights from InvestingPro that could provide additional context to the company's recent earnings call and future prospects:K92 Mining's market capitalization stands at approximately $1.3 billion, reflecting the market's valuation of the company's growth potential and its mining assets.The company's price-to-earnings (P/E) ratio is currently at 45.23, which indicates that investors are willing to pay a premium for its earnings. This is further supported by the adjusted P/E ratio for the last twelve months as of Q2 2024, which is at 37.19, suggesting an anticipation of continued profitability.In terms of profitability, K92 Mining has been profitable over the last twelve months, with a gross profit margin of 41.09%, signaling efficient management and a strong position in the market.

InvestingPro Tips for K92 Mining highlight several positive indicators for the company's financial health and growth prospects:K92 Mining holds more cash than debt on its balance sheet, a sign of financial stability.Analysts predict the company will be profitable this year, supporting the optimistic outlook presented in the earnings call.

For investors seeking more detailed analyses and additional insights, there are 9 more InvestingPro Tips available for K92 Mining at https://www.investing.com/pro/KNTNF, which can offer a deeper understanding of the company's financial health and market performance.Full transcript - K92 Mining Inc (KNTNF) Q2 2024:

Operator: Thank you for standing by. This is the conference operator. Welcome to the K92 Mining’s 2024 Second Quarter Financial Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions [Operator Instructions]. I would now like to turn the conference over to David Medilek, President and COO. Please go ahead.

David Medilek: Thank you, operator. And thanks everyone for attending K92 Mining's 2024 second quarter results conference call. We hope you and your families are doing well. In addition to myself, we have on the line John Lewins, Chief Executive Officer and Director; and Justin Blanchet, Chief Financial Officer. I would also like to remind everyone that after the remarks from management, the call will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes and risk disclosure in our MD&A and Slide 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. Now, I'll turn it over to John to provide you with an overview.

John Lewins: Thank you, David, and welcome everyone. We begin with safety, K92's number one priority. At the end of the second quarter, K92 marked a major achievement with zero lost time injuries recorded over the last 12 months. Over this period, two independent safety audits were conducted. From these audits, a number of actions were identified and many actions have been taken and completed. Safety technology on site has been enhanced, including the introduction of in-cab monitoring and proximity and collision avoidance system with more systems planned for the future. Culturally, there's also been multiple positive leading indicators. For several consecutive quarters, there has been a significant increase in job safety assessments to reinforce our safety mindset and a number of safety warnings from our in-cab monitoring system has actually significantly reduced. Changes to personnel have been made where required, resources have been and are being expanded for safety and training. As stated on previous conference calls, we take the increased lost time injury frequency rate in 2023 very seriously, while also noting that historically K92 has operated with one of the best safety records in Papua New Guinea and the broader Australasia region, as shown in the chart. I'd like to reiterate that K92 relentlessly pursues our goal of achieving zero harm amongst our workforce. K92 is extremely pleased to have announced its 2023 sustainability report in June. The report builds on previous versions, enhancing our ESG reporting disclosure and our alignment with the global frameworks of SASB and TCFD. The report highlights K92's strong commitment to ESG and to the people and the country of Papua New Guinea. And this includes our focus on hiring and developing local content with approximately 94% of our workforce Papua New Guinean nationals, including a majority from our local communities. Our strong commitment to supporting the local economy, including 24.5 million of expenditure to local support joint ventures and procurement of 105 million incurred in Papua New Guinea, representing 56% of our total procurement for the mine; our delivery of significant benefits to the country with $26.8 million of taxes and royalties paid plus $0.8 million in direct community investment; our commitment to combating climate change with a mission reduction target set for 2030. So K92 is extremely proud of the positive impact its having on the prosperity and development of Papua New Guinea, and we encourage you to read our report found at www.K92mining.com. In May 2024, K92 achieved a major milestone with the commencement of its inaugural infrastructure tax credit scheme project to upgrade the [indiscernible] road. The 6.6 million project, inclusive of $0.5 million of general administration for the project itself and for other ITCS projects, is expected to be transformational for many of our communities, enabling reliable and efficient sealed road access to the main road network. This also opens up many opportunities for our community, including increased trade and business development. The picture on the right is a grand breaking ceremony attended by the Honourable Simon Tear, Governor of Eastern Highlands Province and K92's VP Government and Community Affairs, Philip Samar. Funding for the project is through a tax credit scheme with up to 2% of assessible income to be allocated by K92 for government approved community projects and deducted from future corporate tax payable. It's an excellent program. We're proud to be part of it and we look forward to positively transforming the infrastructure of our local communities through this and many other projects to come. Moving on to operational performance. During the quarter, the Kainantu Gold Mine produced 24,347 ounces gold equivalent. As previously announced, production for the quarter was impacted by the temporary suspension of underground operations for approximately a month starting in mid-March as a result of a Form 29 issued by the Mineral Resources Authority of Papua New Guinea for a non-industrial fatal incident, which occurred on site and this significantly impacted March and April production, as underground operations needed to be re-ramped up and processing stockpiles needed to be rebuilt from scratch. During the quarter, a total of 95,582 tonnes were processed at a head grade of 8.5 grams per tonne with a cash cost of $919 an ounce and an all-in sustaining cost of $1,510 an ounce. As annotated on the chart, all-in sustaining costs have been elevated for the past few quarters as the company continues to make a considerable investment in the Stage 3 expansion, particularly in 2024 with costs expected to decline considerably after delivering the expansion. I think it’s important to highlight that prior to the non-industrial incident, Q1 was on track to be one of our strongest quarters on record and a lot of positives can be taken from that going forward. Operational performance in May and June was strong. And as outlined in our operational guidance earlier in the year, the second half of the year is expected to be our strongest. We reiterate our 2024 operational guidance. In terms of key operational quarterly physicals, K92 has demonstrated the ability to sequentially expand the operation for several years with physicals in the first half of the year clearly impacted by the temporary suspension of underground operations that impacted that in March and then in April. During the first half of the year, the process plant has continued to be a major operational positive. In the first quarter, the process plant set multiple monthly, weekly and daily throughput records, exceeding the 2A throughput by 35%, 57% and 75% respectively, clearly demonstrating that with tonnes in front of it from the mine, it is extremely capable and provides significant optionality going forward. The records also highlight the potential that the Stage 3 process plant, which was designed on the same throughput parameters as the Stage 2A process plant, is much more capable than its 1.2 million tonnes per annum nameplate design. In the second quarter, the process plant set records in terms of metallurgical recoveries. As shown in the bar charts, gold and copper recoveries were significantly higher than both 2023 and Q1 2024, and importantly, higher than our integrated development plan assumptions. We see additional upside to recoveries upon delivery of the Stage 3 process plant under construction, which is a more optimal plant design. I will now turn over to our Chief Financial Officer to discuss our financial results.

Justin Blanchet: [Technical Difficulty] [$2,246] compared to 28,141 ounces at an average selling price of $1,883 in the prior year. As at June 30, 2024, there was 4,968 gold ounces in inventory, including both concentrate and doré, an increase of 3,291 gold ounces when compared to March 31st due to timing of sales. During the second quarter of 2024, cost of sales was $27.7 million compared to $29.2 million in the prior year or $19.4 million compared to $21.8 million when excluding non-cash items. Cost of sales is lower primarily due to reduced variable costs, including consumables and haulage associated with throughput, which decreased when compared to 2023. Q2 2024 cash flow from operating activities before changes in working capital was $17.3 million compared to $16.2 million in the prior year. As of June 30, 2024, we had $71.1 million in cash and cash equivalents, spending $29.8 million in expansion capital in the quarter. We had a working capital balance of $91.7 million and had a net debt balance of $38.9 million on the balance sheet. In June, K92 established two credit facilities with Trafigura, referred to as a loan in the financial statements to borrow up to $120 million with an accordion feature that allows for an increase to $150 million. As of June 30th, K92 has drawn $40 million from the loan and has since drawn an additional $20 million or $60 million in total. There are no restrictions on the remaining $60 million that may be drawn from the loan. Further, the $20 million of restricted cash shown on the balance as security for the loan can become unrestricted on January 1, 2025, meaning we have access to an additional $80 million. As John mentioned during the second quarter, the Kainantu Gold operations produced 21,661 ounces of gold, 1,246,639 pounds of copper and 26,754 ounces of silver or 24,347 ounces of gold equivalent. We sold 19,064 ounces of gold, 898,578 pounds of copper and 18,467 ounces of silver. We incurred a cash cost of $919 and an all in sustaining cost of $1510 per ounce of gold, which was significantly below our selling price of $2,246 per ounce. Our second quarter cash cost per ounce increased to $919 from $597 in 2023. The increase was due to the higher cost of sales from expenditures incurred during the temporary suspension, which were expensed directly to cost of sales, lower amounts of development and a lower amount of byproduct credits. It is important to note that we will see downward pressure on cost via economies of scale as operations ramp up and the Stage 3 expansion is complete. I will now turn the call back to John to continue with the rest of the presentation.

John Lewins: Thank you, Justin. The exploration and growth section, we begin with an update of the Stage 3 and 4 expansions, which will fundamentally transform K92 into a Tier 1 mid-tier producer through sequentially increasing production to 300,000 ounces per annum and then 470,000 ounces gold equivalent per annum. Importantly, this transformation is happening near term with the commissioning of the Stage 3 process plant planned for Q2 2025. The delivery of Stage 4 expansion remains on track, targeting late 2026. As at the end of July, 57% of Stage 3 and 4 growth capital has been either spent or committed. And as a reminder, the process plant is the largest growth capital package and that was awarded in July 2023 on a lump sum fixed price basis, which significantly de-risked the project for K92. Both the Stage 3 and 4 expansions are fully financed from existing cash, cash flow and credit facilities. In June, we announced the establishment of $120 million credit facilities with Trafigura, upsizing from the previously announced $100 million. In addition to this, there's an accordion feature to increase the aggregate amount under the credit facilities to $150 million, well positioning K92 with not only significant liquidity for Stage 3 and 4 expansions but also enabling the potential to add significant value through exploration during this construction period, which I'll discuss later in the presentation. As Justin noted, we've drawn $40 million from these facilities as at the end of the second quarter and subsequent to quarter end, an additional $20 million. The no restrictions on the remaining $60 million that currently can be drawn from the loan plus there is an additional $20 million of restricted cash that can become available from January 1, 2025 for a total of $80 million of available liquidity. Concurrent with the credit facility closing, we also closed our new off-take agreement with Trafagura, who have been our off-take partner since the start of operations. The new off-take and upsized credit facilities reinforce our strong long term relationship with Trafagura. The off-take is a creative, securing competitive terms on metal spot prices, attractive payment arrangements and improved metal payabilities. Later this year, we plan to upgrade our integrated development plan to reflect these enhanced off-take terms and also our substantially larger mineral resource, which increased by almost 50% when factoring in depletion from the last economic study. In terms of the Stage 3 construction, we'll begin with a 3D animation flyover of the process plan design looking at the entire circuit, with the dry end of the circuit in the distance and the wet end in the foreground. The circuit is a conventional single stage crush, SAG, ball arrangement with gravity and flotation recovery to produce doré and a gold-copper concentrate. We now move much closer to the plant starting with our single stage jaw crusher crush product then reports to a surge bin with an additional over stockpile reporting to a dead stop-up. Reclaimed crush door then reports first to the SAG mill and then discharged from that reporting to the ball mill. The mill product undergoes gravity and flotation recovery, producing doré from the gravity and a copper-gold-silver concentrate from the flotation. The recovery method is the same proven methodology that we use in the Stage 2A expansion, but with a more optimized design, which includes inline analysis, which we expect will deliver better metallurgical recoveries. Based on the performance of the Stage 2A plan significantly outperforming the throughput model, we have designed this new plant to be expandable, able to add additional flotation, filtering capacity, for instance, which provides sufficient room to make cost effective upgrades and increase the throughput. We'll now pivot to recent drawn footage of the construction site. For those of you who were on the last webcast conference call, which was in May, you'll certainly appreciate considerable progress that has been made. Over 50% of the civil works are now completed and the mechanical installation is due to start in September. Starting with the primary crusher area, the raft foundation for the jaw crusher is in and work is underway on the walls. The workers on the right are setting up steel panels to support erecting the walls in various concrete lifts. Crusher is significantly oversized, which is important for future expansions. For the crush or stockpile reclaim area, the raft foundation is in and the walls are being set up. In the grinding area, you'll notice that this area has progressed the most as the other areas are lower priority based on our construction schedule. On the far side is where the ball mill will be installed with the pedestal for the feed end and jacking cradles complete. Concrete work is currently forming the motor end of the bearing. Closest to us is where the SAG mill will be installed, the faft foundation is poured and form work is underway for the mill. On the right side, concrete will be poured for the cyclone tower raft foundation imminently, on the left side excavations for the mill discharge hopper have also been completed. For the flotation circuit, the raft has been poured and pedestals lifted. The first layer of backfill and compaction have been completed. At the tailings thickener, an extensive amount of work has been done. All pedestals have been poured and the team is in the process of removing formwork. The concentrate thickener footings have been poured, the pedestals have been poured and we're at the backfilling stage. The final part of the circuit is the lowest priority with work on wall footings underway for the concentrate, flotation and storage sheds. Earlier this month, we marked a major milestone with the arrival of the SAG and ball mills to site. The photo on the left is a ball mill shell and ends and the SAG mill ends. The SAG mill shell is in country and will be transported to site imminently. Many other process plant long lead items are also now on site as shown in the photo, including the float cells, concentrate thickener, tailing thickener, ball mill feed chute, mill girth gears, mill components, such as the motors. Long lead items for the process plant are tracking ahead of the construction schedule. We're very excited with the increased process plant construction activity, which is gaining significant momentum and look forward to providing further updates on the process plant construction in due course. On the paste fill plant, we've made significant progress. The front end engineering design is effectively completed. Many of the long lead items are ordered, including the live bottom feeders, paste mixers, filter presses and pumps. Work towards the award of the construction contract is well advanced. Work on other ancillary construction packages, such as the power station, haul road upgrades, camp upgrades, warehouse, maintenance facilities, et cetera are also making good progress. Beyond the Stage 3 and 4 expansion surface works, multiple near term major infrastructure upgrades that will fundamentally transform the underground mine are being put in place. The twin incline, as shown on the image on the right, is effectively complete. It's capable of operating trucks that are four times the speed and approximately 50% larger than what we're currently using. It will also eliminate double handling at the mine portal and allow us to haul material directly to the process plant. As part of the expansion, we're also putting in place a series of ore and waste passes to efficiently leverage gravity to connect the main plant to the highly productive twin incline infrastructure. And as shown in this video, the raised bore rig is operational, it’s currently boring at 5 metre diameter raise to upgrade ventilation in the main mine. The raised bore vertical development advance rates have been faster than budgeted, which is very encouraging. And the raise is almost complete, marking yet another milestone as we transform the infrastructure of the underground mine for the Stage 3 and 4 expansions. The second raise plan will be for the waste and ore pass system. Now these various infrastructure upgrades, combined with the tripling of the mining fronts in 2024, as shown on this slide, are set to fundamentally transform the mine and business into a Tier 1 mid-tier producer near term. In terms of exploration, we're drilling the Kora, Kora South, Judd, Judd South vein systems plus Arakompa vein system. On 6th of May, K92 reported a total of 140 holes at Kora, Kora South, Judd, Judd South. These results continue to demonstrate that this is a world class deposit with significant upside for future growth. The results at Kora discovered a new potential dilatant zone to the south beyond the resource, expanded and upgraded a large zone of high grade as demarcated by the large ellipse with the dashed black line above the mine workings, and expanded high grade mineralisation to the south from underground step-out drilling. It's an important highlight that exploration to the south continues to intersect high grade copper, as annotated on the K-2 long section with multiple significant step-out intersections approaching 4% copper in addition to recording high gold. These intersections have extended the high grade copper zone further to the south and continue to confirm our thesis for high and potentially increasing copper grades as we drill further to the south towards the A1 porphyry. Judd has also delivered some impressive drilling results, including expanding vertically a high grade zone at the J1 vein, as demarcated with the large dashed black-line ellipse, with multiple plus one-ounce per tonne intersections. Like Kora, those results are particularly significant as they are immediately above the main mine workings, setting ourselves up well to mine that area in the near to medium term for the Stage 3 expansion. The results at Judd also intersected high grade mineralisation in a step-out drilling 300 metres to the north in an area with effectively no drilling, highlighted by our KODD0055 recording 9.85 metres and 7.85 gram per tonne gold equivalent near surface. Now on the 10th of June, K92 announced its second set of drilling results at Arakompa, reporting nine holes. Arakompa, as shown on the map on the right, is located approximately 4 to 4.5 kilometres from the process plant, which is closer than Kora and Judd. Historically, Arakompa has recorded limited drilling with only 18 holes, largely shallow, having been drilled for a total of only 1.8 kilometres drilled. Our initial drilling results were outstanding and the second set of results were exceptional. A significant amount of high grade was intersected, including KARDD0011 recording 3.7 metres at 42.35 grams per tonne gold equivalent. KARDD0009 recording 6.7 metres at 14.35 grams per tonne gold equivalent. And KARDD0006 recording 12.6 metres at 19.87 grams per tonne gold equivalent. The high grade loads are hosted within a wide mineralised corridor, overprinted by porphyry-style mineralisation. This has delivered multiple bulk intersections and average reported true thickness of 67 metres. Highlights included KARDD0006 recording 94.4 metres at 3.14, KARDD0011 recording 86.6 metres at 2.12 and KARDD0010 recording 66 metres at 2.1 grams per tonne gold equivalent, which also ended early in mineralisation Importantly, as shown on the image on the right, the target size of Arakompa is very large. To date, we've defined a strike length of over 400 metres and only 20% of the 150 to 225 metre wide corridor strike length drill tested by K92. In addition to growing the deposit along strike, Arakompa has significant potential at depth as shown in the long section image on the left and also significant potential within the 150 to 225 metre corridor where the full width of the corridor has not yet been drill tested, as shown in the cross section on the right. We're pleased to report that exploration at Arakompa continues to accelerate. As shown in the very recent drawn footage, there are now four drill rigs operating at Arakompa. At the beginning of the year, we had one drill rig. When we hosted our Q1 conference, we had two drill rigs drilling. And driven by the strong results that we've seen, very strong results, in fact we've now got four rigs drilling. The rig we've zoomed in is our fourth drill rig operating. It's situated more towards the east than the other pads, providing us with some different vantage point to target that very wide mineralised corridor. Conditions at Arakompa for drilling have been good. The rock is competent, penetration rates continue to be productive, even faster than we see at Kora and Judd. We plan to announce a maiden resource at Arakompa by Q1 2025 and look forward to providing updates at Arakompa in the near term. With that operator, we'd like to commence the Q&A section. Thank you.

Operator: Thank you. We'll now begin the question-and-answer questions [Operator Instructions]. The first question comes from Ovais Habib with Scotiabank.

Ovais Habib: Congrats on a good quarter and really good to see things are progressing well on the expansion as well. Couple of questions from me, John. Number one, second half is expected to be significantly better than the first half. What is going to be driving that, is that basically grade or throughput or both? Any color you can provide on that, that'd be great.

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

Ovais Habib: And then Justin, on that front, in terms of increasing the mining rates, obviously, your ventilation raise has started to progress. Where does that stand in terms of completion? And I'm assuming that's what's going to generate your accelerated development and mining rates?

Justin Blanchet: Ovais, you're quite correct. The ventilation is a key for us in stepping up underground. The raise bore is due to break through, I think, early in September. So that will be our first raise, almost 300 metres, 5 metre diameter. Generally speaking, the progress on that -- we’ve got more metres per day than we than we budgeted. So we're pretty happy with that. And so that end of the quarter, we'll have that new ventilation, that interim ventilation, because it is an interim step, should be up and running by end of quarter, early next quarter. And as you know we've got a site visit coming up in October and the people who actually, those who are coming along, will be able to see and hopefully feel that as well, being underground.

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

John Lewins: This is the interim step. We've still got a further step, which is the PUMA incline and that's scheduled to break down -- break down to break through in late Q4, early Q1 and be operational in Q1 next year. Now, that is our long term ventilation, that's where we're putting in two -- 2 megawatt fans, variable speed and that ventilation basically is life of mine as it currently stands.

Operator: The next question comes from Stephen Soock with Stifel.

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

John Lewins: So the critical path is primarily the SAG and ball mill, as is generally the case, not always, but generally the case when you're doing plants. Lead times for the mills, the mill package was the longest lead time. And as you saw in the presentation, the mills are on site apart from the shell for the SAG mill, which will be transported up from the port of late to site later this month, that is our critical path. And right now we're on track to see that completed and able to start commissioning at the end of the -- by the end of the second quarter. That would be followed by probably the flotation as the next sort of critical area. Right now, I guess we're pretty comfortable with what we're seeing there. I mean, obviously, steel work, a lot of steel work is starting to come in as well, having finalised designs there, et cetera. And then, of course, it's obviously ramping up the underground. I guess the other side of it that was flagged is right now where we're seeing our existing plant able to do a lot more tonnes than the 600,000 tonnes per annum, and that's a big positive in terms of the new plant as well.

Operator: The next question comes from Andrew Mikitchook with BMO Capital Markets.

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

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

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

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

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

John Lewins: So the paste fill plant is a bit over $50 million, so it's a very significant portion, as you quite rightly identified of our overall capital. We have placed orders for long lead items in relation to that, such as filters, pumps, mixers, et cetera. We're just finalizing the tender documents to go out on tender for the actual construction. And that includes, obviously, the contractor that's building the process plant but there are others as well who will be tendering on that. Start of commissioning of that isn't until the third quarter next year. You basically want to have your process plant reasonably stable before you start trying to commission your paste fill. Otherwise, you've got instability leading into your paste fill, which is not ideal, because as you know paste fill requires stability in order to perform optimally. Having said that, the design that we have does actually allow better flexibility than you would see in a standard plant in as much as we're producing a filtered product, which we take underground and repulp and therefore, you have more flexibility between the two plants.

Andrew Mikitchook: And then just in terms of timeline, like should we expect before year end to see this move from tendering to locked in, is that a reasonable expectation?

John Lewins: Absolutely. We'd expect to award the contract next quarter, early…

Andrew Mikitchook: In Q4?

John Lewins: Yes.

Operator: [Operator Instructions] The next question comes from Alex Terentiew with Ventum Financial.

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

John Lewins: So right now, obviously, it's in our EL. At this point in time, it's our intent to put an application in for a mining license next year covering Arakompa, Maniape, Mati and also the Kora and Judd South where they extend beyond the existing mining lease. The total area you can have as a mining lease, I think, is about 60 square kilometers. And we've got a layout already, a design already of what mining lease that we want, which fits in with that requirement. And we've already had started our discussions with the MRA and in fact with government in relation to putting that application in. We've started work such as mapping of communities and people, because that's an important part of the process as well. The communities generally that we would be engaged with in relation to an extended mining lease are already part of the existing mining lease, maybe a few additional people but in the main part than those people there will be some additionals as well. It's a mining lease application. It is not a special mining lease, it's not an expansion of the mining lease, because under the current legislation, there is no ability to expand a mining lease. I'd note, having said that, that as recently as last week, the MD of the MRA highlighted that the government -- it is the intent of the government to modify the act to allow for mining leases actually to be expanded. If that occurs before we put the application, then we would actually look at expanding the mining lease rather than putting a new application in. But we're working on the premise right now that it would be a new mining lease. From the perspective of information, there's not a huge amount of difference. But there is a view that expanding a mining lease would be quicker than getting a new mining lease in place. Realistically putting it in '25, you would be expecting mining lease issued late '26, '27, and you really wouldn't be in a position to start mining until that point anyway, because as it stands right now, we spoke about 400 metres, 500 metres of strike length of Arakompa. But on the surface, we've mapped this for about 1.7 kilometers. We don't at this point in time, know what sort of depth extent that we're looking at. And we'll gradually be drilling deeper and deeper as well as a long strike. And obviously, we are putting significant rigs on this to as quickly as possible get ourselves a real view of what we have. But I'd sort of point out, if you look at Kora and remembering we had underground access to Kora, we've been at Kora now for seven years. We've drilled -- I can't remember that it's 600 holes or something. There's an enormous number of holes that have been drilled in order to get us to the sort of resource that we have now. And I think we're sitting 2.4 million or thereabouts in measured and indicated and another 4.7, I think, in inferred. And overall, I think the total number is close on 8 million ounces when you take into account what we've already mined. So it will be -- we think, multiple year drilling out of this deposit. And we certainly see it has similar strike length to what we see at Kora and Judd or similar potential strike length asb we see at Kora and Judd. And so there'll be a heck of a lot of drilling and there'll be a lot of drilling from underground. Potential access is similar to the Kora type model in that you're coming in the side of a mountain and going up into your deposit. So realistically, I think the earliest you could probably look at it is '27. And that's where the capacity of the new plant and the potential for the new plant to achieve Stage 4 without restarting the existing plant becomes important, because obviously that means that you've got a spare plant sitting there with a capacity of 600,000 tonnes per annum or whatever that number is, that you could use for something like Arakompa. Sorry long answer, we have given it a lot of thought, I can assure you.

Alex Terentiew: Well, that's great. It's an important part of the next leg, so that I appreciate the clarity.

Operator: [Operator Instructions] There are no further questions in the queue. And this concludes the question-and-answer session. I would like to turn the conference back over to John Lewins for any closing remarks.

John Lewins: Well, thanks for that, Brenda. Thanks for joining us today on our latest quarterly update. In many ways, I think we believe this is possibly the most important quarterly results presentation that we've had in that we are now very much advanced in our transformation of the Kainantu Mine with the implementation of Stage 3 and moving it very much into delivering what we've, I guess, been identifying and promising for a number of years, which is moving it into a Tier 1 status, producing mine -- long life mine. When you're on-site and some people will be on-site in October, you’ll see massive progress towards achieving that, both underground and on the surface and we see progress daily. It's really exciting to see. I’ve just presented at the PNG Investment Conference in Brisbane, something that government actually wanted us to do, because currently we're the biggest investor in Papua New Guinea. And so we get a lot of kudos and a lot of support from government for that. If we look at operations, this first half of the year undoubtedly was challenging. And despite that we actually produced, I think, equal second best first half of the year that we've achieved. And we are well set up, well positioned for achieving plus 70,000 ounce in the second half of the year. We're sitting in a, obviously, a very positive price environment and we're doing -- we're in that positive price environment while we're constructing, which is a really positive for us in terms of our cash flow and obviously in terms of ramping up or production, perfect timing in terms of seeing that strong price environment. Looking at our exploration, we're obviously extremely excited by Arakompa. We started off the year with one rig there. We've now got four. We'll have more results soon. But as you will have seen from the first set of results, first two sets of results that we put out, it's a really exciting prospect and it's one of a number of high grade prospects that we intend to be drilling over the next couple of years. We spoke about Maniape, which is just next to Arakompa. And certainly next year, we see ourselves starting to drill at Maniape and potentially Mati as well. So we are also looking at first quarter of next year to bring out that first resource in Arakompa. And again, for us, very exciting times. We're looking forward to sharing the operations results that we're seeing and having people able to see it, see what's happening on our construction of the Stage 3 and see what's happening on the exploration with the site visit that we've got planned in October and then obviously, sharing that in our next quarterly results. So thanks again, everyone, for joining us in this call and we look forward to the next one. Thank you very much.

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

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Source: Investing.com