K92 Mining to Expand Kainantu Gold Mine, PNG

2019-03-13 / @nasdaq

K92 Mining announces formal decision to double capacity at its Kainantu Gold Mine to 400,000 tonnes per annum, increasing production an average of 120,000 ozs AuEq per annum.

The key aspects of the expansion include:

Production is projected to be 68-75,000 ozs AuEq in 2019 and 115-125,000 ozs AuEq in 2020;
Plant processing capacity is expected to be increased to 400,000 tonnes per annum (“tpa”) by end of Q4 2019;
Mine underground production increasing over an 18-month period to achieve the design capacity of 400,000 tpa by Q3 2020;
Capital Cost for the expansion is estimated to be US$15 million spent over a 12-month period;
The Preliminary Economic Assessment* (“PEA”) on the expansion estimated:

— The expansion would achieve an NPV₅ of US$710 million pre-tax, or US$559 million after tax, and a total Internal Rate of Return (“IRR”) of 350%; and

— Average production of over 120,000 oz AuEq* per annum with cash costs of US$429/oz AuEq* and all-in sustaining costs (“AISC”) of US$615/oz AuEq** over a 13-year life.

* As reported in the “Independent Technical Report, Mineral Resources Estimate Update and Preliminary Economic Assessment of Kora North and Kora Gold Deposits, Kainantu Project, Papua New Guinea”, with an effective date of September 30, 2018 (the “Technical Report”). Refer to the Company’s news release dated January 8, 2018 for a summary of the results of the PEA.

** Au Eq – calculated on above Current Metal Prices of Au - US$1,300/oz; Ag – US$15/oz; Cu – US$2.90/lb.

VANCOUVER, British Columbia, March 13, 2019 (GLOBE NEWSWIRE) -- K92 Mining Inc. (“K92” or the “Company”) (TSXV: KNT; OTCQB: KNTNF) is pleased to announce the commencement of the expansion of the Kainantu Gold Mine in Papua New Guinea, to double current capacity to 400,000 tonnes per annum, increasing annual production to an average of 120,000 ounces of gold equivalent (ozs AuEq).

Based on the PEA, the major outcomes resulting from the decision to expand production include:

Total Capital Expenditure for 2019 is projected to be US$30 million, comprising US$12 million in expansion capital, US$8 million in sustaining capital and US$10 million in capital development;
Production is projected to be 68-75,000 ozs AuEq in 2019 and 115-125,000 ozs AuEq in 2020;
Cash Costs are expected to be between US$580 and US$620 per oz AuEq, and AISC are expected to US$780 to US$820 per oz AuEq in 2019, dropping to Cash Costs below US$500 per oz AuEq and AISC below US$700 per oz AuEq in 2020;
Employment is expected to increase from the current 650, to 750 by the end of 2019, and to 800 by the end of 2020, with over 96% of all positions in site being filled by PNG Nationals;
Based on the outcomes of the PEA:

— Total production over the next 13 years would be 1.33 million ozs Gold and 130 million lbs Copper;

— Total Revenue for the period would be over US$2 billion;

— Royalty payments for the period would be US$50 million;

— Total tax paid to PNG Government for the period, from payroll and corporate tax, would total US$300 million;

— Total sustaining capital of US$202 million would be required over the period; and

— Net Cashflow would be US$1.03 billion, the Net Present Value (“NPV₅”) would be US$710 million pre-tax, or US$559 million after tax, and the Internal Rate of Return (“IRR”) would be in excess of 350%.

As part of the expansion, the Company has recently purchased two Caterpillar AD45 Low Profile trucks for underground operations, with the first truck expected on site before the end of March and the second shortly thereafter.

John Lewins, K92 Chief Executive Officer, states, “I am extremely pleased to report that today, the Company is formally announcing that it has committed to the expansion of the Kainantu Gold Mine. This expansion will double plant and mining capacity and increase production to an average of over 120,000 ozs AuEq per annum over the next 13 years, with potentially more to come as we ramp up our exploration efforts.

This decision follows the completion of the PEA in January, which showed a robust project capable of producing almost 650,000 ozs Au and 10,000 tonnes of copper over the next five years and over 1.3 million ozs and 60,000 tonnes of copper over a 13-year life. With cash costs of only $429/oz AuEq and AISC of $615/oz AuEq.

The Company sees this expansion as another step in developing the Kainantu Gold Mine into a world class operation with costs potentially in the lowest quartile. The Company is committed to a major program of exploration with three diamond drill rigs operating underground and major development focused on expanding the Kora/Kora North resource with a target of 5 million ozs by the end of 2019. With the Kora deposit open along strike and at depth, this target is considered realistic with the current 2019 drilling program scheduled to double the number of metres drilled underground to 20,000 from less than 10,000 in 2018.

The Company has already spent almost US$3 million on mobile plant, fixed plant and the camp in Q1 2019, all of which is part of the initial capital expenditure required for the expansion. The Company will continue to fund expansion capital and sustaining capital from cash flow from production. However, it is anticipated that negotiations on a possible debt financing will be completed by the end of Q1 2019 to ensure that the timeframe for the expansion is met.

This ability to restart operations at Kainantu, move to profitable operations and then initiate a significant expansion of production in just over two years has been made possible in no small part by the support and assistance of the PNG Mineral Resources Authority (“MRA”), the Office of the Mining Minister and all levels of Government in PNG. Most important, however, has been the support of our Local Landowners for the operation; they are not only some of our most important stakeholders, but also make up the largest group of employees and are partners in many aspects of the operation.

We look forward to working with all of the stakeholders in the Kainantu Gold Mine to successfully complete this stage of development and move forward to the next.”

The PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. The Company’s decision to expand production is not based on a feasibility study of mineral reserves demonstrating the economic and technical viability of the expansion. As a result, there is increased uncertainty of the economic and technical risks of failure associated with the decision.

K92 engaged H and S Consultants Pty Ltd to complete a Mineral Resource Estimate for the Kora North Deposit (Table 1). This resource together with the previously reported Kora Mineral Resource Estimate dated March 2017 (Table 2) provide the resource base for the updated PEA.

K92 engaged Mincore Pty Ltd (“Mincore”) to complete a PEA for the expansion of the existing processing plant to double its capacity to approximately 400,000 tonnes per annum. The study found that the current crushing, milling and concentrate handling circuits have sufficient capacity to treat the Kora mine material at a rate of 400,000 tpa, subject to upgrading the crushing and flotation circuits and plant services. The estimated total cost of such expansion and upgrading would be US$3.7 million, including EPC and commissioning with a contingency of 10%.

The Company engaged Australian Mine and Development Pty Ltd (“AMDAD”) to undertake the PEA mine plan for Kora and Kora North, which involved:

applying financial and processing parameters to determine cut-off grades for stope design.
generating three-dimensional stope shapes and mining inventory using the CAE Mineable Shape Optimiser (MSO) program.
creating a conceptual development layout to suit the MSO inventory.
producing a project cash-flow model.
producing a simple mining schedule as input to the cash-flow model.

The key results from the PEA for the combined Kora North and Kora deposits are as follows:

Could have a 13-year operating life and treat 4.9 million tonnes @ 9.0 g/t Au, 20 g/t Ag & 1.3% Cu (11.0 g/t Au Eq*);
Could achieve an estimated pre-tax NPV of US$710 million (US$559 million after-tax) using current metal prices, exchange rate and a 5% discount rate;
Initial capital cost estimated to be US$13.6 million, including US$3.7 million for the plant upgrade identified in the Mincore Scoping Study;
The additional combined development and sustaining capital cost is estimated at US$202 million spent over the life of mine;
Operating cost per tonne estimated to be US$163/tonne for the first five years and US$153/tonne thereafter;
Cash cost estimated to be US$429/oz Au Eq (inclusive of a 2.5% Net Smelter Royalty) and AISC of US$615/oz Au Eq;
Production of an estimated 135,000 Au ozs and 2,100 Cu tonnes over a 5-year period from 2019 through to 2023, with average production of 90,000 Au ozs and 6,500 Cu tonnes for the balance of the life of mine; and
Current metal prices used were: Au - US$1,300/oz; Ag – US$15/oz; Cu – US$2.90/lb.

*AuEq – calculated on above Current Metal Prices.

The Kora North resource estimate was defined after just twelve months of underground exploration drilling.


Table 1 - Kora North Mineral Resource Estimate

Global Mineral Resources Kora North Gold-Copper Mine - October 2018
Category	Tonnes	Gold		Silver		Copper		AuEq
	Mt	g/t	Mozs	g/t	Mozs	%	Mlbs	g/t	Mozs
Measured	0.15	18.7	0.09	8.9	0.04	0.5	1.6	19.6	0.09
Indicated	0.69	11.6	0.26	14.1	0.31	0.8	11.8	12.9	0.29
Total M & I	0.85	12.9	0.35	13.1	0.36	0.7	13.3	14.1	0.39
Inferred Total	1.92	10.7	0.66	13.3	0.82	0.7	29.5	11.9	0.74

M in table is millions.

The Mineral Resources estimate was prepared and verified by Simon Tear (PGEO), consultant to the Company and a director of independent consultancy of H & S Consultants Pty. Ltd., Sydney, Australia (October 2018).

Key Assumptions and Parameters

Mineralization comprises two parallel, steeply west dipping, N-S striking quartz-sulphide vein systems, K1 & K2, within an encompassing dilatant structural zone hosted by phyllite. An additional structure, the Kora Link, has also been defined and provides a possible link between the two main vein systems.

Underground drilling consists of diamond core for a range of core sizes depending on length of hole and expected ground conditions. Sampling is sawn half core under geological control and generally ranges between 0.5m and 1m. Underground face sampling is completed for every fired round and is to industry standard.

QAQC data indicated no significant issues with the accuracy of the on-site analysis.

Core recovery of the mineral zone was initially 90%, this has improved to >95%. There is no relationship between core recovery and gold grade. Geological logging is consistent and is based on a full set of logging codes covering lithology, alteration and mineralization.

The geological interpretation of the vein systems is represented as 3D wireframe solids snapped to a combination of diamond drillhole data and underground face sampling. Definition of the wireframes is based on identified gold mineralisation in drillcore nominally at a 0.2g/t Au cut off in conjunction with geological control/sense and current mining widths.

Gold Equivalent (Au Eq) g/t was calculated using the formula Au g/t +(Cu% x 1.53) + Ag g/t x 0.0127. (No account of metal recoveries through the plant have been used in calculating the metal equivalent grade. However, production is currently achieving 93% metal recovery for both gold and copper and gold is currently providing 95% and copper 5% of the total revenue of the mine).

Gold price US$1,300/oz; Silver US$16.5/oz; Copper US$2.90/lb.

The mineral resource estimate for the Kora deposit is based on the technical report prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”), and titled, “Mineral Resource Update and Preliminary Economic Assessment of Irumafimpa and Kora Gold Deposits, Kainantu Project, Papua New Guinea," with an effective date of March 2, 2017. This provides additional information on the geology of the deposits, drilling and sampling procedures, lab analysis, and quality assurance/quality control for the project, and additional details on the resource estimates. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.


Table 2 – Irumafimpa and Kora/Eutompi Resource Estimates

Resource by Deposit and Category
Deposit	Resource Category	Tonnes	Gold		Silver		Copper		Gold Equiv
Deposit	Resource Category	Mt	g/t	Moz	g/t	Moz	%	Mlb	g/t	Moz
Irumafimpa	Indicated	0.56	12.8	0.23	9	0.16	0.28	37	13.4	0.24
Irumafimpa	Inferred	0.53	10.9	0.19	9	0.16	0.27	74	11.5	0.20
Kora/Eutompi	Inferred	4.36	7.3	1.02	35	4.9	2.23	215	11.2	1.57
Total Indicated		0.56	12.8	0.23	9	0.16	0.3	4.0	13.4	0.24
Total Inferred		4.89	7.7	1.21	32	5.06	2.0	218	11.2	1.76

*M in table is millions.* Reported tonnage and grade figures are rounded from raw estimates to reflect the order of accuracy of the estimate. Minor variations may occur during the addition of rounded numbers. Gold equivalents are calculated as AuEq = Au g/t + Cu%1.52+ Ag g/t0.0141.

K92 Mine Geology Manager and Mine Exploration Manager, Mr. Andrew Kohler, PGeo, a Qualified Person under the meaning of NI 43-101 has reviewed and is responsible for the technical content of this news release. Data verification by Mr. Kohler includes significant time onsite reviewing drill core, face sampling, underground workings and discussing work programs and results with geology and mining personnel.

ON BEHALF OF THE COMPANY,

John Lewins
Chief Executive Officer and Director

For further information, please contact the Company at +1-604-687-7130.

NEITHER TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Non-GAAP Financial Measures

In this press release, we use the terms “cash costs" and "all-in sustaining costs ". These should be considered as non-GAAP financial measures as defined in applicable Canadian securities laws and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Cash costs per ounce is a non-GAAP term typically used by gold mining companies to assess the level of gross margin available to the Company by subtracting these costs from the unit price realized during the period. This non-GAAP term is also used to assess the ability of a mining company to generate cash flow from operations. Cash costs per ounce includes mining and processing costs plus applicable royalties, and net of by-product revenue and net realizable value adjustments. Total cash costs per ounce is exclusive of exploration costs.

Cash costs per ounce is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The measure is not necessarily indicative of cash flow from operations under IFRS or operating costs presented under IFRS.

The Company adopted an "all-in sustaining costs per ounce" non-GAAP performance measure in accordance with the World Gold Council published in June 2013. The Company believes the measure more fully defines the total costs associated with producing gold; however, this performance measure has no standardized meaning. Accordingly, there may be some variation in the method of computation of "all-in sustaining costs " as determined by the Company compared with other mining companies. In this context, "all-in sustaining costs" for the consolidated Company reflects total mining and processing costs, corporate and administrative costs, exploration costs, sustaining capital, and other operating costs.

All-in sustaining costs per gold ounce is intended to provide additional information only and does not have any standardized meaning under IFRS and may not be comparable to similar measures presented by other mining companies. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION: This news release includes certain “forward-looking statements” under applicable Canadian securities legislation. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. All statements that address future plans, activities, events, or developments that the Company believes, expects, or anticipates will or may occur are forward-looking information, including statements regarding the realization of the preliminary economic analysis for the Kainantu Project, expectations of future cash flows, the proposed plant expansion, potential expansion of resources and the generation of further drilling results which may or may not occur. Forward-looking statements and information contained herein are based on certain factors and assumptions regarding, among other things, the market price of the Company’s securities, metal prices, exchange rates, taxation, the estimation, timing and amount of future exploration and development, capital and operating costs, the availability of financing, the receipt of regulatory approvals, environmental risks, title disputes, failure of plant, equipment or processes to operate as anticipated, accidents, labour disputes, claims and limitations on insurance coverage and other risks of the mining industry, changes in national and local government regulation of mining operations, and regulations and other matters.. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.