CA - Karora Resources Inc. (KRRGF) Q3 2023 Earnings Call Transcript
2023-11-10 12:32:01 ET
Karora Resources Inc. (KRRGF)
Q3 2023 Results Conference Call
November 10, 2023 10:00 AM ET
Company Participants
Paul Huet - Chairman and CEO
Oliver Turner - Head of Corporate Development
Leigh Junk - MD- Australia
Conference Call Participants
Puneet Singh - Eight Capital
Jeremy Hoy - Canaccord Genuity
John Sclodnick - Desjardins
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the Karora Resources Third Quarter 2023 Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Friday, November 10, 2023.
I would now like to turn the conference over to Paul Huet, Chairman and CEO of Karora Resources. Please go ahead.
Paul Huet
Thank you, operator. Good morning, everyone, and I'd like to wish a happy Memorial Day to everyone. I'd like to welcome everyone to the Karora Resources third quarter 2023 conference call. Please note, we will be referencing a slide deck, which is available on the home page of our website as well as through the webcast of this call.
Before I begin the presentation, I would like to remind you to please review our cautionary statements regarding forward-looking information and non-IFRS measures. These statements can be found in our first quarter MD&A news release and in our presentation slides.
Today, we are joining you from Perth. In the room with me is Leigh Junk, our Managing Director. And by the way, it's quite late at night here for those of you who don't know. Leigh will take us through the operational highlights from the first three quarters of the year. Also on the call with me today is Oliver Turner, our Head of Corporate Development.
Following on our record first half, Q3 was another strong quarter with gold production of approximately 40,000 ounces. Year-to-date for 2023, we have produced a record of 120,197 gold ounces, positioning us well to achieve our guidance.
Our production has been consistent since our strategic acquisition of the Lakewood mill last year. Looking back to 2022, I'm pleased we were able to move quickly to complete the transaction, which significantly derisked our expansion plans especially considering the inflationary environment we've been in since that time.
At Beta Hunt, I'm excited about our recent drill results. It really drives home the potential we have in front of us for many years of growth in both gold and in nickel. Leigh will expand on this in his remarks.
Look, to be honest, in my humble opinion, Beta Hunt truly is a beast. And I certainly believe that the best is yet to come for our shareholders. It's tough to contain one's excitement and passion, given the success we've had at Beta Hunt with that drill bit, it's been quite amazing. It's been impressive.
Attracting the right talent to our team is a top priority. And during Q3, we strengthened both our Board of Directors and our senior team at Karora. Tony Makuch joined our Board of Directors and is Chair of our Technical Committee.
Tony is quite familiar with Karora having served as an adviser to the Company since May 2022. It's no secret, people like Tony Makuch, are very much in high demand. The fact that Tony joins Karora Board is a true endorsement to the growth and exciting future we have in front of ourselves.
When Barry Dahl, our former CFO, decided to retire after a long and successful career in the mining sector, we were very fortunate to attract Derek Humphry to the Karora team as our new CFO. After his first full quarter with us, I can say firsthand Derek is a great fit for our team. His 20-plus years of experience across both the TSX and ASX-listed companies including both gold and nickel producers, fits perfectly into our plans to take Karora to the next level.
We have also benefited from the addition of Peter Ganza to the position of Chief Operating Officer. Peter brings a strong track record of leadership, including in mining operations and growth at Goldfield, Saracen, and most recently at Northern Star as GM of ESG and the growth. As with Derek, Peter's experience will be a great asset to help take us where we need to go, I am very pleased to welcome all three of them to our team.
Turning over to Slide 6. I will now go over some of the financial highlights. This morning, we issued a news release with our third quarter financial results, our unaudited financial statements and MD&A for the period ended September 30, 2023 have been filed and are available on our website and under Karora's profile on SEDAR.
As I outlined at the beginning of the call, the first three quarters of 2023 have been in line with our guidance. With record consolidated gold production, putting us in a strong position to achieve our full year guidance of a range of 145,000 to 160,000 ounces. All-in sustaining cost for the first three quarters were approximately $1,188 per ounce sold, well within our full year 2023 guidance of $1,100 to $1,250 per ounce.
Headline financial results for the third quarter included revenue of CAD107 million, up 32% compared to Q3 of 2022. And slightly lower compared to the prior quarter when we had record high gold ounces sold. The strong revenue in the quarter was driven by sales of 41,278 gold ounces at an average realized gold price of $1,931 per ounce.
Q3 adjusted earnings were $14 million or $0.08 per share, a slight improvement from the prior quarter. Adjusted EBITDA was $37 million or $0.21 per share, and cash flow provided by operating activities was $45 million or $0.26 per share. up $11 million or $0.06 per share from the prior quarter.
Our cash balance at the end of Q3 was $84 million, up $13 million from Q2. We with our undrawn $40 million revolver credit facility, we have a strong and flexible financial position as we continue to execute our growth plan in the current gold price environment.
With that, I'll now turn the call over to Leigh Junk to take you through the operating highlights.
Leigh Junk
Thanks, Paul, and good morning, everyone. Our operating team led by our new Chief Operating Officer, Peter Ganza, continued to achieve an excellent safe production performance, which is what we're striving for, and it's a big part of our culture here at Karora.
Now on to Slide 8. On a consolidated basis, gold production for the third quarter remained strong at 39,547 ounces from 516,000 tonnes milled at an average grade of 2.5 grams per tonne. The small gold production decrease compared to the prior quarter was primarily driven by slightly lower tonnes milled.
We experienced a short crushing interruption during the quarter, which was quickly overcome through the use of contract crushing or repairs are made to the crushing bridge at our Higginsville processing plant. Consolidated mill recoveries during the quarter remained strong and consistent at 95%.
Consolidated cash operating costs for Q3 were $1,062 per ounce sold, a slight improvement compared to the prior quarter driven by higher grades and lower costs at Higginsville relative to Q2. It's important to note here that no nickel byproduct credits were booked in Q3 due to the timing of sales. We mined 5,193 tonnes of nickel ore at an average grade of 1.6%, which represents a byproduct credit of around $22 an ounce on a consolidated basis when sold.
In the prior quarter, we booked a credit of $38 an ounce. The first three quarters of 2023, we milled 1.6 million tonnes of ore at an average grade of 2.54 grams per tonne for 120,197 ounces of gold at an average cash operating cost of $1,083 per ounce sold. All improvements over last year and in line with our growth plan expectations.
Turning to Slide 9 now. Before I get into the numbers, I'll give a brief update on the progression of the ongoing expansion of the Beta Hunt operation. The third and final vent raise planned in this phase is now complete.
This is a critical component as an increase of ventilation capacity to mine, allowing us to operate a larger mining fleet required for production ramp-up towards our targeted rate of 2 million tonnes per annum by the end of 2024. During Q3, we added two more trucks and are loaded to the underground fleet with further fleet additions planned for 2024.
Turning to the numbers for Q3 at Beta Hunt, we mined 357,204 tonnes which is a 20% increase compared to the prior quarter, demonstrating the progress we're making in ramping up our production.
During the quarter, as planned, we mined a lower-grade section from the central part of Western Flanks for an average mine grade of 2 grams per tonne, resulting in a 19% reduction in contained gold mined quarter-over-quarter. We expect an improvement in mine grades for the current quarter as we mined through higher grade areas.
Switching over to processing. 333,000 tonnes of Beta Hunt materials milled at an average grade of 2.17 grams per tonne for production at 21,926 ounces of gold. For the first three quarters of 2023, we milled 951,000 tonnes of Beta Hunt material at an average grade of 2.55 grams per tonne for the production of 74,212 ounces.
As I mentioned, in Q3, 5,193 tonnes of nickel ore were mined at an average grade of 1.66%. And for the first three quarters, we mined 18,035 tonnes of nickel at a grade of 2.14%. Cash operating costs for Beta Hunt in Q3 were $1,233 an ounce sold compared to of $1,007 in the prior quarter. The higher costs are due to two main temporary factors.
The first one, the lower grade in Q3 resulted in lower gold produced and sold. And two, there was no by-product contribution from nickel, which accounted for $61 an ounce reduction in cash operating costs of Beta Hunt in the prior quarter. And for the first three quarters, the cash operating cost of Beta Hunt were $1,071 per ounce sold in line with the same period of '22.
Now looking at Slide 10. Higginsville mines contributed 17,621 ounces of gold in Q3 and produced from 183,000 tonnes of ore milled and average grade at 3.13 grams per tonne. Higginsville mine material was 96,367 tonnes at an average grade of 5.16 grams per tonne.
The reduced tonnes mined compared to the prior quarter was a result of the completion of the Aquarius underground mine during the quarter and the ongoing transition to ramp up production from the Pioneer open pit.
Production from Higginsville mines to the end of Q3 was 45,985 ounces from 603,000 tonnes milled at an average grade of 2.52 grams per tonne. This is a really good result and testament to the new site management and the whole team at Higginsville are doing a great job.
Higginsville Mines benefited from the higher grades during the third quarter, resulting in quarter-over-quarter 28% reduction in cash operating costs to $832 an ounce. Year-to-date, Q3 cash costs were $1,101 an ounce.
Turning to Slide 11. One of the many areas that Beta Hunt I'm excited about from an exploration point of view is a Fletcher Shear Zone. In June, we began a nine-hole drill campaign at Fletcher to follow up on significant results reported in April this year, which include an intercept of 46.5 grams per tonne over 7 meters at the southern end of Fletcher near the Alpha Island full.
All of the follow-up holes encountered significant mineralization in the targeted position. The results from the latest drill holes reported in September are highlighted in yellow on the slide. And you can see the intercepts of 15.9 grams per tonne over 6 meters and 4.8 grams per tonne over 32 meters amongst the standout results from the latest drilling.
As a reminder, Fletcher is considered a structural analog to Western Flanks, Beta Hunt's largest and most prolific gold zone to date. Fletcher is positioned about 250 meters to the west and parallel to western flanks in the hunt block and extends south to the Alpha Island Fault.
Fletcher remains open along strike with the potential to extend for up to 2 kilometers and is also open at depth. Overall, Fletcher is a really exciting opportunity with huge potential for conversion into a new growth area for our gold mineral resources.
On Slide 12, you can see some of our other recent drill results from Beta Hunt. At the Mason zone, seen at the lower middle of the slide, you can see 14.7 grams per tonne over 4-meter highlighted.
New drilling report in September extended the gold mineralization strike by 100 to 800 meters, and we expect to be in a position to declare a maiden gold mineral resource at Mason in our next resource update.
At Western Flanks, A zone and Larkin, results from drilling aim to upgrade and/or infill the existing mineral resource was also reported in September. I won't list them all here but you can see on the slide, we've got some really strong results from this drilling as well.
As you can see, there's a lot happening at Beta Hunt on numerous fronts, with exploration, development, improving infrastructure and fleet expansion. All part of our ramp-up and the team at Beta Hunt are doing a fantastic job at managing all of that. The next big milestone I'm looking forward to is providing an updated mineral resource and reserves soon.
With that, I'll turn the call over to Oliver Turner.
Oliver Turner
Thanks, Leigh, and good morning, everyone. So I'm pleased to report that the Kali Metal spin-off transaction remains on track to be completed by year-end. Just last week, on November 3, Kali Metals filed its initial public offering prospectus for a listing on the Australian Stock Exchange. The IPO aims to raise AUD12 million through the issuance of 48 million ordinary shares at an issue price of AUD0.25 per share and is expected to close in December.
As a reminder to Karora shareholders, Karora owns 45% of Kali pre-IPO. The Kali transaction is part of our strategy to unlock the lithium value creation potential of our extensive Higginsville land package.
In the second quarter, we reached an agreement with Kalamazoo to create a jointly owned but separately run lithium focused ASX-listed exploration company and the intent of this is to provide Karora shareholders with exposure to the lithium value creation potential through participation in a well-capitalized lithium focused investment vehicle that will have significant scale in a Tier 1 jurisdiction.
It's important to note that Kali Metals will fund its own exploration and development activities, allowing core to keep its management and capital allocation decisions focused on growing our gold and nickel production across our operations.
So under the agreement, both Karora and Kalamazoo have vended their lithium rights at their various projects across Australia into the vehicle. The newly formed Kali Metals has an impressive 3,800 square kilometers of highly prospective lithium and critical metal tenements, much of which is adjacent to existing large lithium mines and deposits.
Lastly, on Kali, it will be led by a very experienced management team with a proven track record of success, including Managing Director, Graeme Sloan. So just one last point before I turn the call back over to Paul. Late last month, we renewed our normal course issuer bid under the normal course issuer bid, or NCIB, the Company is permitted to repurchase up to 8.9 million of its common shares subject to certain conditions. Any shares repurchased by the Company under the NCIB will be canceled.
The NCIB can be a very effective use of financial resources when the common shares of Karora are trading at a significant discount to their underlying value. Since we just renewed the NCIB a couple of weeks ago, no repurchases have been made yet under the renewed NCIB, but we're very pleased to have it in place if needed in the future.
So with that, I'll turn the call back over to Paul Huet.
Paul Huet
Thanks, Oliver. Operator, we'll turn the call over now for a couple of questions, please.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Puneet Singh of Eight Capital.
Puneet Singh
I had a couple of questions on Beta Hunt. Maybe just because the mining sequence affected this quarter, how do you see that shaping up over the next couple of quarters? And then maybe just as you expand, how many stopes do you expect to be open when you're mining at Beta Hunt at Cira fully ramped up?
Oliver Turner
Yes, sure. We are expanding. So the number of stopes we'll be mining is increasing. Next year, we plan to mine about nine stopes a month throughout next year and ramp up over next year and in the future, and we can do up to 12, 13 stopes a month. So, we are ramping that up.
Puneet Singh
Okay and then could you provide some more insight on the nickel plans? How those are progressing? And what kind of time frame until we see production from those newer areas?
Oliver Turner
Yes, sure. The nickel plan to date, we've been mining remnants to date, so -- which is why the production has been fairly low. But Karora discovered an offset in the main channel, which we call the 50C, which is to the south of the main ore body that's been mined to date. So Karora found that. So we're currently drilling that. We've been developing up to that because it's a bit higher than the last channel.
So, we've been developing up there. We're drilling it now and first production from that area is planned for the second half of next year. And that will be the first time that Karora's mined a brand-new virgin area of nickel. And we've got about 3 kilometers of strike from there to our Southern boundary. So once we get into that that will be really exciting.
Operator
Your next question comes from Jeremy Hoy of Canaccord Genuity.
Jeremy Hoy
I'll start with, I guess, sort of further on the to Puneet's question about where you guys will be mining next year. I'm just wondering if you could give us a bit of an idea of some of the other areas where you'll be mining and what -- and how we can see that impacting grades?
Oliver Turner
Yes. Jeremy. Next year, we'll be mining A Zone, A Zone North, Western flanks in the central north and south. So three areas in Western Flanks and two areas in A Zone and will also commence Larkin as well in the second half of next year. So like all the more options you have, the more areas you mind, the more flexibility you have within the mine to manage grade and production. So, the more we open up these new areas like so Island North and Larkin and extend the Western Flanks down with those three declines, the more flexibility we have. So, we'll be mining more areas next year.
Jeremy Hoy
Okay. Great. And I appreciate that you reiterated the 2024 guidance as well. My next question is about drilling and when we can expect to see that hitting the resources and reserves? So you had some great results at Fletcher zone As well as its Spargos. And with the Spargos results, you guys mentioned that there would be an updated reserve and resource update in Q4, followed by a potential decision to proceed with development of that underground operation.
Is that still on track? And can I confirm that doesn't just for Spargos, the Fletcher results we can expect to see with a later resource update. Could you just provide some clarification around when we'll get what in terms of new resources?
Oliver Turner
Yes. Sure, Jeremy. We will put out, like you said, our resource and reserves this current quarter, so pretty soon. And it won't contain Fletcher because we're still drilling that, and we haven't got a resource there yet. So, we're still drilling that.
And as for Spargos, we are targeting commencing that in the first half of next year. So, we're just finalizing our plans and getting ready to put that into production. But we should be getting going there in the first half of next year.
Operator
Your next question comes from John Sclodnick of Desjardins.
John Sclodnick
Just a few questions for me. First, it looks like you're tracking well on guidance here. Just wanted to clarify if you're comfortable at the top end or really any reason we should expect lower production in Q4.
Oliver Turner
We're tracking well. We should be above the midpoint of production for the year.
John Sclodnick
Okay. Perfect. And I guess looking out to 2024, just curious on the major capital projects you've got planned and any reason to change that CapEx guidance for next year looking out?
Paul Huet
Yes, John. Look, we just had the Board here. The team are putting together the final numbers here. As you can appreciate, we've got a new CFO, Leigh has been in the role here in the chair and be for a number of months here. New Chief Operating Officer with Peter, we're putting together a budget as we speak. So we don't have anything finalized at the moment. Just stay tuned. We'll be putting out something here shortly. All right, John?
John Sclodnick
Okay. Yes. No, understandable. And looking at the lease, it takes some time to get new players integrated. Just at Beta Hunt. Yes, I'm wondering about the pace of ramp-up that you'd expect next year? Like should we expect steady quarter-over-quarter increases than hitting that annual run rate at year-end?
Paul Huet
Before we answer that, why don't we take a step backwards here? John, you've been covering the story for quite a while now. You think back what was it -- 2019, when we first started, we were struggling. You remember, we were struggling to get 25,000 tonnes a month out of Beta Hunt. We've consistently gone from 25,000 tonnes a month to 50,000 tonnes we hit 80,000 tonnes. We settled in there for about nine months. We pushed it all the way up to 120,000 tonnes a month.
Remember, this was an operation doing 25,000 tonnes a month. We're about at 140, 000. So, to sustain that, our guidance next year was somewhere between 1.5 million to 1.7 million tonnes. The top of my head, I don't have the rate in front of me, but I suspect we're going to be right in line with that guidance that we put out and turn it in.
Let's face it. Those are big numbers. Those are stepping up year after year after year and delivering. So that range of 1.5 million to 1.7 million, I suspect we're going to be right in there.
Jeremy Hoy
And I appreciate that. And yes, equity research channels are the worst. We're just always wondering what's next. So..
Paul Huet
Yes, that's where we're coming from, right? It was -- it's heck of a journey.
Jeremy Hoy
No, absolutely for sure. No, it's been very impressive. But last one for me, just wondering on toll milling. Is that all done at Lakewood??
Oliver Turner
Yes. We haven't done any this year or since I've been here, and we have no plans to do any no.
Operator
There are no further questions at this time. I would hand over the call to Paul Huet for closing comments. Please go ahead.
Paul Huet
Yes, thank you everyone. I appreciate you taking the time to listen to us today. We know how busy people's lives and calendars are. I do want to say thank you to our team in Australia. We've done some amazing changes here. I'm really proud of the team, another strong quarter, a very safe quarter. Thanks to the Board. Thanks to our shareholders. We appreciate everyone, and have a great day.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.
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Karora Resources Inc. (KRRGF) Q3 2023 Earnings Call Transcript