2023-03-30 15:21:09 ET
K92 Mining, Inc. (KNTNF)
Q4 2022 Earnings Conference Call
March 30, 2023, 08:30 ET
Company Participants
David Medilek - President
John Lewins - CEO & Director
Justin Blanchet - CFO
Conference Call Participants
Don DeMarco - National Bank Financial
Chris Thompson - PI Financial
Ralph Profiti - Eight Capital
Alexander Terentiew - Stifel Nicolaus
Presentation
Operator
Thank you for standing by. This is the conference operator. Welcome to the 2022 Fourth Quarter and Annual Financial Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to David Medilek, President. Please go ahead.
David Medilek
Thank you, operator, and thanks everyone for attending K92 Mining's Fourth Quarter and 2020 Annual 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 sellers, unless otherwise noted. Now I'll turn it over to John to provide you with an overview.
John Lewins
Well, thank you, David. And welcome, everyone. I think before we start the formal review of results, I need to start by recording on behalf of everyone at K92 than it is with profound sadness that we record the recent passing of our Chairman and friend, Tookie Angus. Tookie was a deeply respected business adviser to the mining industry and an admired leader and a mentor to many. Within K92, he was a big part of our success. He's been Chairman since the inception of the company and its acquisition of the Kainantu project in 2015.
He was an extraordinary Director and Chairman, very much a team player bringing an incredible wealth of experience and of course that sense of humor and charm. Tookie also a strong passion for philanthropy and helping others, which was evident in so many things he did and some of his actions. His contributions to the mining industry were far-reaching. He'll be missed, long remembered by us all and we extend our condolences to his family.
So moving on, during the fourth quarter, K92 took yet again another step forward achieving multiple records, including record ore tonnes processed, record tonnes mined, record ore tonnes mined, record development advance and our second highest quarterly production ever and strong all-in sustaining and cash costs.
For 2022, the company met its production guidance and beat its cost guidance for both cash cost and all-in sustaining cost. In the fourth quarter, we delivered multiple growth catalysts, including the 10-year extension of the mining lease, the approval of Stage 3 and Stage 4 expansion development by K92's Board of Directors and some very exciting drill results within the core Kora South and Judd South vein systems which I'll discuss later in the presentation.
On the safety front, we recorded no lost time injuries for the fourth quarter, and we're proud to continue to operate with one of the best safety records in the Australasia region with a strong focus on occupational health and safety and continuously improving our safety systems.
On the ESG front, I'm pleased to announce that K92 was a recipient of the award for outstanding women's contribution in the resource sector at the Papua New Guinea Mining & Petroleum Investment Conference in Sydney in early December. The award was in recognition of our adult literacy program. We started in 2019 with just 8 students and have now graduated over 200 with 90% of those being women. The support for this program has been simply outstanding, and we're expanding even further this year. Beyond our literacy program, we provide business and training -- skill training and I'm really pleased to see our new businesses in our community are being created as a result of this.
And while in Papa New Guinea in February with our VP of Government Community Affairs, Philip Samar and the Local Director, Daisy Taylor, we awarded the scholarships of the 2023 mining tertiary program.
Now each recipient was presented with medal honoring senior Papua New Guinean leaders within K92. This program awards students in their third year of study in the field of mining, biology and geology. In 2022, the program was extended to include women in mining. The right image shows this year's recipient, Vanessa Tapi. The scholarships cover all tuition, accommodation and other costs for the final year as well as a living allowance. In addition, all recipients will be provided with entry into a 2-year graduate training program following the hopefully successful completion of their studies.
I'd like to offer my congratulations to this year's recipients. Image on the left is from our meeting with government officials while we're in Goroka, which included the governor of the Eastern Highlands province as well as a new local member. And while there, K92 pledged to support funding efforts to rebuild a part of the student accommodation at the Goroka campus, which was damaged as a result of the earthquake in September 2022. That earthquake damage has been disruptive for many students who were previously based on the campus and now have to travel daily to university for studies. So this was something that we felt was really important that we should contribute towards.
Also on the ESG front, I'm pleased to report the construction of the dedicated 22 kV power line, the site has been completed. That power line is expected to significantly increase the reliability of clean hydroelectric power distribution to the site. Reducing utilization of the backup diesel gen sets, which often, reducing our operating cost is important in reducing our greenhouse gas emissions and at K92, we continue to look for opportunities to make a difference and mitigate climate change.
Moving on to our operational performance. During the quarter, we produced 35,538 ounces gold equivalent with 121,686 tonnes processed at a head grade of 9.9 gram per tonne gold equivalent. This compares with Q4 2021, a 22% increase in ore processed. For the year, production was 122,806 ounces gold equivalent, meeting our production guidance range of 115,000 to 140,000 ounces of gold equivalent for 2022. Cash costs at $538 per ounce were better than the guidance range of $560 million to $640 million and all-in sustaining costs at $864 an ounce were also better than our guidance range of $890 to $970 an ounce.
In terms of our key operational physicals, K92 delivered record ore processed, record ore mined and record development meters. As noted in previous conference calls, increasing our development rates continued to remain a focus for the quarter. And something we could catch up on our development that has been impacted by COVID 19. I'm pleased with the development advance rates that we achieved in the last quarter and that we now continue to see in 2023 year-to-date.
In terms of our outlook for 2023 and performance year-to-date, I think it's important to highlight that the operation has experienced unexpected operational challenges at the process plant and also at the mine. In late February, we press released that the process plant had experienced 8 days of combined downtime in February due to a mill trunnion bearing failure and also an electrical fire in a cable tree. I'm pleased to report that after completing the maintenance and repairs, the process plant has performed very strongly, sequential setting daily records, as you can see on the chart there with the latest record being 1,815 tonnes processed on March 11.
To put that into perspective, Stage 2A expansion process plant design throughput is 1,370 tonnes per day. Also important to note, the process plant has not yet had the benefit of the Stage 2A rotation expansion, the additional 2 rougher cells that we put into pace to double our rougher capacity, and that's planned to commission in the second quarter.
At the underground mine, second half of the quarter, we also encountered more challenging ground conditions than expected, which slowed down our mining rate and limited access to some of our higher-grade areas. While this is generally not a serious problem for the operation because we can source additional ore tonnes from other mining areas, however, due to development rates being below budget for several quarters during COVID 19 as shown previously on the operating physicals, we don't have sufficient backup areas so we've had to supplement mill feed from some of our lower grade stockpiles. As a result, we do expect the first quarter to be not only below budget, second quarter, potentially moderately low budget. 2023 production will still, however, were the guidance trends that we provided.
I think it's important to highlight there have been several positive developments underway to improve our operating flexibility in the near term. Firstly, recent development rates, as we've shown, are performing well with record set in Q4 and strong development advance year-to-date. Development is obviously a leading indicator for operational flexibility and we expect to start benefiting from the strong advance rates near term with 2 new sublevels currently being established.
Secondly, multiple pieces of new equipment have recently arrived and more is on the way. New equipment is both replacing a less productive equipment and also increasing the size of our fleet. Thirdly, during the second half of the year, we'll be accessing the ore body at depth from the twin incline opening up an entirely new mining front, which is serviced by a large twin incline.
All of these points in addition to the process plant is performing strongly, position the company for a strong second half of 2023. And of course, our budget showed that we'll be mining higher grades in the second half of the year as well. So we were expecting significantly higher second half year.
I'll now turn it over to our Chief Financial Officer, Justin Blanchet, to discuss the financial results for the third quarter.
Justin Blanchet
Thank you, John, and hello, everyone. During the fourth quarter, we had revenue of $62 million a 15% increase from prior year. We sold 35,212 gold ounces at an average realized selling price of $1,652 compared to 30,068 ounces at an average realized selling price of $1,707 in the prior year. As of December 31, 2022, there was 3,612 gold ounces in inventory, including both concentrate and doré a decrease of 3,183 gold ounces when compared to September 30, and due to timing of sales.
During the year, we had revenue of $188.2 million, a 22% increase from the prior year. We sold 110,654 gold ounces at an average realized selling price of $1.711 compared to 92,560 ounces at an average realized selling price of $1,724 in the prior year. Q4 2022 cost of sales was $29.8 million compared to $21.3 million in the prior year or $23.2 million compared to $15.9 million when you exclude noncash items. Cost of sales increased primarily as a result of costs associated with the operation of the Stage 2 expansion. As a result, operational activity has increased from 99,713 tonnes in Q4 2021 to 121,686 tonnes in Q4 2022.
For the year, cost of sales was $96.3 million compared to $83.3 million in the prior year or $74.7 million compared to $63.3 million, including noncash items, an increase of 18%. The successful ramp-up of the Stage 2 expansion has allowed the company to achieve better economies of scale and lower unit costs with total ore processed increasing 33% and from 336,221 tonnes in 2021 to 448,087 tonnes in 2022. Q4 2022 cash flow from operating activities before changes in working capital was $26.6 million compared to $24.3 million in the prior year. For the year, cash flow from operating activities before changes in working capital was $72.5 million compared to $59.8 million in 2021.
As of December 31, 2022, we had $109.9 million in cash equivalents, while spending $42.4 million in expansion capital for the year and having our strongest working capital balance to date of $125.2 million. The company also has no debt on the balance sheet. As John mentioned, during the fourth quarter, the Kainantu Gold operations produced 31,204 ounces of gold, 1,827,085 pounds of copper and 40,517 ounces of silver or 35,538 ounces of gold equivalent. We sold 35,212 gold ounces, 1,923,116 pounds of copper and 44,828 ounces of silver. We incurred a cash cost of $512 and an all-in sustaining cost of $870 per gold ounce, which is significantly below our realized selling price of $1,652 per ounce.
During the year, the Kainantu Gold operations produced 107,546 ounces of gold, 6,247,950 pounds of copper and 126,043 ounces of silver or 122,806 ounces of gold equivalent. We sold 110,654 ounces of gold, 6,072,879 pounds of copper and 125,155 ounces of silver. We incurred a cash cost of $538 and an all-in sustaining cost of $864 per ounce of gold for the year, well below our realized gold selling price of $1,711 per ounce.
Our 2022 cash cost per ounce of gold decreased to $538 from $614 in 2021. The decrease in cash cost was primarily due to the successful ramp-up of the expansion, allowing the company to achieve better economies of scale and a 20% increase in gold ounces sold from 92,560 in 2021 to 110,654 in 2022.
It's important to note that after commissioning the Stage 2 plant expansion in late third quarter of 2021, we have seen a significant compression in our total unit cost per tonne processed. We continue to see downward pressure on costs via economies of scale as operations ramp up. I will now turn the call back to John to continue with the rest of the presentation.
John Lewins
Thank you, Justin. For the exploration and growth section of the conference call, let's begin with a major milestone that occurred on December 6 at the PNG Mining & Petroleum Investment Conference with the Honorable Sir Ano Pala, The Minister of Mining for Papua New Guinea announced a 10-year extension to our mining lease to June 2034. The extension was granted well ahead of the renewal date. So effectively, it's almost 12 years from when the renewal was signed and we believe that speaks volumes for the support for the operation from our various stakeholders, including quite clearly the government. Concurrent with that announcement, the Board of Directors of K92 approved the Stage 3 and Stage 4 expansions with the plan being very much to transform Kainantu into one of the industry's next great mines. So our Kainantu mine strategy growth pipeline has now been updated to reflect this milestone with Stage 3 now underway, State 4 approved. The tender process is well advanced for the various elements of the expansion. And we're pleased, I think, with the interest that we're seeing from many contractors and engineering funds.
Regarding Stage 2A commissioning of the full tanks is planned for the second quarter with the installation of the 2 rougher cells, which will pretty much double our flotation capacity well advanced, as you can see in this year. upon its completion, we expect to not only boost recoveries, but also potentially throughput. I'm also pleased to report we've recently received several key pieces of equipment on site including new jumbo shown in the image to the left and a new long-haul rig, which just arrived a few days ago on the right.
Other pieces of equipment that have arrived this year include a new loader, 2 integrated tool carriers, cement agitator and another Normet charging machine. Most of that equipment was -- planned to arrive last year, but delayed due to the global supply chain issues, which we all, I think, experienced. We're certainly excited to have the equipment on site now are looking forward to benefiting from the greater productivity and also from that expanded fleet. On twin incline, the furthest incline has now advanced 2,115 meters as of the end of February.
The performance of the development crew has been very strong. And during 2022, the twin incline development was around 50% better than budget. From the twin incline, we plan to commence drilling in Kora Deeps and Judd Deeps towards the end of next quarter or early in the following quarter. and they obviously are high prospective exploration targets within the mining lease.
Later this year, we also plan to commence first mining of the lower portion of the core resource from that twin incline. That's expected to provide a significant boost to our operational flexibility with a new mining front established at depth.
In terms of the vein field exploration, drilling is underway at Kora, at Kora South, Judd, Judd South and also Northern Deeps. Looking at the long section of Kora, Kora South to date, we've defined something like 2.65 kilometers of strike. With exploration from surface focusing on Kora South and underground exploration targeting Kora South, Kora, Northern Deeps. As noted earlier, towards the end of the second quarter or third quarter, Kora Deeps drilling plan to commence from the twin incline. Now Judd, Judd South, as shown on the long section here, to date, we've defined approximately 1.7 kilometers of strike length. Like Kora, Kora South; Judd, Judd South is open in multiple directions, and we've intersected mineralization on almost every hole that we drill to date.
Surface and underground drilling currently is targeting both Judd and Judd South. Judd Deeps drilling is planned to commence in the third quarter on the twin incline. February 21, we announced 89 drill holes from the Kora, Kora South and Judd, Judd South drilling. The results recorded 5 dilatant zone intersections, including 2 at K1 with KU-DD0035 recording a bit over 50 meters at 5.25 grams per tonne gold equivalent and KU-DD0038 recording 14 meters at around 5.5 gram per tonne gold equivalent. That's particularly significant as it's the first dilatant zone intersections recorded around K1.
Drilling results at K1 also included KMDD0504, which had 6.1 meters at 88.4 gram per tonne gold equivalent, our highest grade result in that particular release.
At K2, we also intersected a dilatants on mineralization in whole KUDD0033, which had 27.9 meters at just under 10.5 grams per tonne gold equivalent. And that was located approximately 100 meters up dip from the previously reported hole of KUDD0002, which had an intersection of 35.9 meters at 5.9 gram per tonne gold equivalent. K2 also delivered numerous high-grade results as shown on the slide there.
At Judd, the results recorded 2 dilatant zone intersections, KUDD0032 which had 30.3 meters at 6.13 gram per tonne gold quiver and KUDD0038, which to 28.7 meters at 4.53 grams per tonne gold.
The head rate at -- surface and Judd and Judd South has been very strong with 54% of holes exceeding 5 grams per tonne. One of the highlights from Judd was KODD0026 which recorded 5.4 meters, a 56.79 grams per tonne gold equivalent, and that was located up from the existing Judd resource. So we see the potential for considerable growth in the Judd resource in that undrilled area towards the surface. So we're obviously very encouraged the latest results intersecting the dilatant zone and increasing hedge rate.
These zones represent potential in dilatant multipliers, with significantly greater tonne per vertical meter and obviously, adds per vertical meter. Based on our emerging understanding of these systems, we believe that they have the potential for considerable vertical depth extent and limited strike lengths and strike 100, maybe 200 meters.
An increasing focus of our exploration program is to target these zones and increase our understanding of their potential. On the porphyry exploration after announcing a maiden Blue Lake inferred resource of 10.8 million ounces gold equivalent of 4.7 billion pounds copper equivalent which is the fifth largest known porphyry Papua New Guinea, our exploration is now focused on A1. A1 is our #1 porphyry target based on the airborne geophysics and t-geophysics we flew in late '21, as surface mapping and the solid geochem sampling that we've undertaken.
As shown in the image A1 is interpreted as being part of a large lithocap complex that hosts the Blue Lake porphyry as well as the Vienna target. A significant surface sampling program has been underway for several months. And that, combined with the geophysics has provided important factors for our initial drilling program.
I'm very pleased to report that we've recently commenced drilling at A1. It's currently one drill rig operating, and we're drilling our first hole. We're looking forward to providing an update in due course.
Lastly, I'd also like to highlight that concurrent with our drilling at A1, we're also continuing to advance exploration on what we call transfer structure target. Where our soil sampling program encountered a substantial high grade anomaly proximate to the A1 target, approximate dimension 100 meters by 750 meters.
So with that, operator, we'd like to commence the Q&A session. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from Don DeMarco of National Bank Financial.
Don DeMarco
Congratulations on Q4 with very strong cost. I think I will start off my question, though, with -- regarding the challenging ground conditions. You mentioned, John, that had the mine been more developed, you could have drawn from other and mitigated any impact and maybe this would be a nonevent.
Do you have confidence that the challenging conditions are localized and not more extensive or pervasive?
John Lewins
Yes. Look, I'd say that we're certainly confident that the areas that we have, which have this challenge, if you like, first of all, that we can actually mine the areas as we set ourselves up more comprehensively.
Secondly, that they are limited in the extent, but nevertheless, they represent an area that gives us some challenges, but also gives us some opportunities in that we've effectively gotten an area where in between our K1 and K2, we get a -- they all merge a long strike. And hanging wall area and it's a hanging wall area in that particular area.
But that hanging wall also has grade. So our focus is actually about also being able to mine that area and recover not just the K1 and K2, but actually to be able to take out that material. So -- it's -- yes, it's -- it has given us a short-term problem, but we don't see it as a long-term problem. And in fact, it provides us with something of a longer-term opportunity in that there is a material that sits there, which is in resource as it currently stands.
Don DeMarco
Okay. So it sounds as though the impacted area is localized. It's limited to maybe where the K1 and K2 hanging wall intersects or something like that, but you're feeling pretty confident that you wouldn't see this elsewhere.
John Lewins
I can't say we won't see anywhere else. But whether it's there or not, I think it's something that we, as I say, see as something that we will be set up to mine and actually be able to get ounces out that right now are not in the results.
Don DeMarco
Okay. And you mentioned that the Q1 is going to be below budget, but Q1 is also impacted by the mill unplanned downtime. Q2, moderately below budget. Does this imply you can kind of see beyond the impacts are greater in Q1 than they are in Q2, and you can see beyond a remedy for the underground challenging conditions at this point?
John Lewins
Yes. Yes. I mean -- as you say, we were also impacted in Q1 with a couple of plant issues. And the reality is if you look at the fourth quarter, the fourth quarter was our best development quarter ever. And we see that being similar sort of numbers in the first quarter this year, and we're certainly expecting to see the numbers actually go up this year.
So our development meters are increasing as we brought in more equipment last year and the year before were both behind budget in terms of development meters, which in part was COVID and in part was delays in arrival of equipment, which I think the whole industry has seen. We've certainly caught up on the equipment that was on order, and you've seen a few forwards there in the presentation of all that nice new gear arriving. So we're actually seeing ourselves increase our flexibility underground, even though we're ramping up production, actually increasing our flexibility underground because we are increasing our development meters.
And then as I mentioned, we've also got the twin incline actually coming in to the bottom end of our resource and hopefully, it's the bottom end right now. But with the drilling that goes on from down there, it will be extending at depth. And that actually gives us a whole new area, which we open up. And therefore, you get a big step up, in fact, in your flexibility for the underground mine.
Don DeMarco
Okay. And so looking beyond a couple of hiccups in Q1 then, is when we look at the production trajectory that was detailed in the PEA, given that your mining rates are increasing and so on, do you still feel that, that 200,000, 300,000, 500,000 ounces of production within a few years is you're well on track for that?
John Lewins
Yes, we certainly do. I mean actual the long lead item, if you like, for underground has always been the twin incline. The twin incline is actually ahead of schedule right now. So that gives us, as I say, improved access underground and the ability to further expand the resource beyond what's in the PEA. And in fact, we anticipate I think towards the end of the third quarter, we will have an update of both Kora and Judd resources.
And some of that resource will be outside of the mining lease, but quite a bit of it will actually be inside the mining lease. So it actually increases the number of ounces that we've got to mine immediately as part of that feasibility study, PEA. The biggest challenge is more, I would say, the lead time that in equipment for the plant.
Operator
Our next question comes from Chris Thompson of PI Financial.
Chris Thompson
Just a quick one. You mentioned I guess, some of the challenges and the need for sourcing some low-grade sort of stockpile or to supplement mill feed in the Q1. Could you give us a sense of what sort of head grades we can anticipate on a blended basis for the Q1?
John Lewins
What sort of head grades, not at this point. We haven't -- I mean, we haven't finished the quarter yet we nearly have -- but I mean, we'll have the numbers out in the next week or so, Chris.
Chris Thompson
Okay. All right. But we can anticipate that was a substantial drop, do you think, from what you delivered in the Q4? Is it more an operation or more a throughput?
John Lewins
It's primarily grade rather than tonnes. And we're obviously down a bit on tonnes in what we processed because we did drop 8 days in the plant but it will be more driven by grade than tonnes.
Chris Thompson
Okay. All right. And then just a quick one, just curious, actually, could you give us a sense of the copper grades. Obviously, can we expect a step-up and copper grade through the mill? And obviously, with the commissioning of the expansion of the plant, new flotation that.
John Lewins
So the copper, we do expect to increase this year on last year. And I think last year was a slight increase from the year before. Overall, that grade will gradually pick up to around 1%, whereas I think last year, it was 0.6%.
In terms of our concentrate grade, I think we're we've seen over the last couple of years that the concentrate grade in the copper has gone up significantly. We're now running at probably 15% to 20%. And certainly, going forward, we see that overall, our grades will be probably closer to the 20s than the 15s. And it's -- the plant, the additional capacity in the plant is not necessarily going to push up the grade, although we do expect to get a bit of an improvement in grade.
It's more about being able to get a, being able to push more tonnes through; and b, we think we'll pick up a couple of percentage points improvement in our recovery of both gold and copper simply because we've got more rougher capacity. Right now, the rougher train comprises of 2 parallel lines of 4 cells. With the addition of the new capacity, we've got 2 cells that then split into those trains. So effectively, you've got a line of 6 that allows us to modify the last rougher to actually be a which is not something we've ever had, which of course, allows you to push up your recovery without compromising your final grade.
Chris Thompson
I guess my final question I know. Yes. Apologies. I know that Justin was talking a little bit about some of the costs coming down on a unit cost basis. Do you think that's -- I guess, can you give us a little maybe sort of unpack that a little bit the components of that cost reduction?
John Lewins
So when you look at our overall cost, I mean, first off, okay, we were within our range in terms of production ounces. In terms of the all-in sustaining costs, the reality is with the late delivery of some of our equipment we didn't spend everything -- we didn't spend all of the capital that we intended to. And so we were in a situation where development meters were behind where we had budgeted last year.
So a combination of that obviously gives you less sustaining capital that was actually -- that was actually spent. And hence, that brings down our all-in sustaining costs.
In terms of cash costs, we built into that some, for instance, ramp-up in our labor and we didn't ramp up as quite as much as we allowed for. So our labor costs were a little bit less. And I think some of the costs that we anticipated coming through in terms of increases, which all of the industry have seen -- some of those didn't come through as much as we anticipated.
So we got some benefit -- we got some benefit as well from that. So yes. And a few improvements. Unit rates came down because we actually mined more tonnes than ever before, number one, but also we mined more tonnes on-budget. So are -- I think, importantly, in some ways for us our costs in terms of tonnes mines were actually down as well which, of course, is important from an operating perspective.
Chris Thompson
Great. And then I guess, finally, very, very quickly, John. I know labor availability in the past has been a bit of an issue, more so because of COVID, I guess and expat availability. Where do you stand now? Can you maybe comment on availability on a forward-looking basis?
John Lewins
We've been fairly happy with availability of labor. In terms of expats and expats make up around 4% to 5% of our total workforce. We haven't had any issues in recruiting of expats. I think we've only got currently maybe 1 or 2 positions out of 70 that are that we're busy recruiting for. And bearing in mind that's expanded numbers. So we're actually expanding the numbers that we have. So although Australia is reported to have quite tight numbers, what we're finding is that pool that we use, which of course are the Australian mining professionals who actually work offshore and that is -- it's a sort of a -- it's a subset, if you like, and it's a quite distinct pool. We're actually finding there's good availability in that area in part, I think, because areas like West Africa are less attractive because you've got longer rosters. And one of the things I think that was highlighted by COVID was your -- if you do have a medical issue, in the middle of COVID suddenly, your Medivac out of West Africa is complex to say the least, whereas if you're where we are in Papua New Guinea, you jump on a plane literally from where we are and 2 hours later, you're in Cairns.
That also means that we run shorter rosters, so they're more family-friendly and people look at those things when they're looking at where they're going to work. So we actually find that's pretty good.
In terms of PNG nationals, certainly, there has been recorded that economic activity has dropped in Papua New Guinea. And that means that professional people and including things like fitters and boilermakers and electricians and whatever else, that there is a good supply of those at present.
And we're certainly doing our part in terms of stepping up our training, particularly looking at artisans. So the fitters, bottoms, electricians they to us are pretty key in our business going forward. And so we've been expanding our training facilities and our capacity so that we are actually taking on apprentices and bringing apprentices through the whole system.
The other one that's helped us is that the Philippines has also opened up and the Philippines, especially in things like for instance, boilermakers, the more senior guys that we would bring in as ex-patriot type people.
There is an excellent supply of those type of people, highly qualified and competitively priced out of the Philippines, and we have daily flights from the Philippines to PNG. So we have -- we do employ a number of people out of the Philippines as well.
Operator
[Operator Instructions]. We do have another question from Ralph Profiti of Eight Capital.
Ralph Profiti
Sorry about the delay there. John, can you give us some indications on the holdback of giving the growth CapEx? Is there a particular procurement items that are still kind of in the queue that you're waiting for clarity on? Just wondering what the timing is. And perhaps what are some of the key items that we're still waiting for.
John Lewins
Okay. Thanks, Ralph. So we've actually been in tender for all the major long-lead items on the plant, which is a major part, obviously and lead time for the whole project. We've got all those tenders in and we're in the process of awarding the contracts for those and putting the orders in. The contract for the actual construction of the plant and the pay scale, we're finalizing that over the next month to 2 months.
So we'll have those contracts in place. And when you look at the overall capital, those are the main items. So that's the main part of our capital. So we've got most of our capital tied down as to cost and all the rest of it, but there are still a few items that we're trying to finalize. And it's also about the timing that we're actually going to be paying for those things. So hence, it's about deliveries and about how long we actually take to get some of that equipment when it's going to be arriving and therefore, what our payment schedule looks like.
So it's a 2-year project. Overall, the capital where we are very comfortable with where we sit in terms of our estimation. The issue is what comes in where.
Ralph Profiti
Okay. Understood. And if I can just come back to the impacts of the ground conditions in Q1 and Q2. Can you maybe sort of put that in the context of the impact to some of your dilution estimates in design? And how that could be impacting dilution on this temporary basis as you work through these intersecting zones of K1 and K2.
John Lewins
Look, I think right now, we don't see it as being a significant in terms of dilution Overall, in certain areas, we may pick up additional 5% or 10% dilution than we've allowed but I couldn't honestly say that it will be 5% or 10% in some areas, maybe nothing at all. So a potential of 5% or 10% in given areas that's probably about where it sits right now from the perspective of, quite frankly, answers and all the rest of it with the commissioning of the additional rougher capacity and whatever else. Right now, we believe we can probably get an extra 10% out of our plant. And you can see from some of the daily numbers that we've shown there, we certainly appear to be able to get 10% more on a daily basis. It's a question of whether you can keep that sustained over a longer term. Certainly, our met guys believe that they can.
So we'll probably have the mill chasing the mine for part of this year before the mine get back on top again and then they'll be giving our met guys [expletive] about where you're going to -- how come you're not treating all of our material?
Operator
Our next question comes from Alex Terentiew of Stifel.
Alexander Terentiew
My question is ideally timed to your last comments there, John. So 2 questions really for me. So on your underground development, how many meters are needed to get you back on track to have the flexibility that you need to avoid relying on stockpile? I know your development rates have been picking up and Q4 was record. But given you were behind, I mean how far behind were you? And how much do you need to catch up this year.
John Lewins
1,364.5 meters, I think, you'll see in May. I just need to confirm the actual detail. Alex, it's certainly, if you look over the last year, about 1,000 meters, a bit over 1,000 meters behind where we want to be. And by the end of this -- and the budget that we've set up for this year gets us back on track. And we've got our additional equipment in. We've got more equipment on order.
We've allowed for that to take longer than we've been told it will take. So the budget we have for this year basically gets us back on track. And I think by the end of the year, we're looking to be up at around 1,000 meters a month whereas currently we're around about the 750 meters a month.
Alexander Terentiew
Okay. No, that makes sense. Perfect. And then a related question, and this goes your comments that you just made to Ralph there, but mine versus the mill, I mean it's great to see the mill hitting some lofty throughput numbers, 800 tonnes -- sorry, 1,800 tonnes a day. But what do you think -- I mean, obviously, this first part of the year is a bit different but come the second half of the year, what do you think a sustainable mining rate could be?
I mean, obviously, it's going to increase over the coming years as you do Phase III and Phase IV. But I guess my question is, your guidance is 120,000 to 140,000 ounces. What opportunities do we have to see to have the second half this year make up some of potential losses in the first part?
John Lewins
Okay. Well, there's 2 things. Obviously, there's grade and there's throughput. Grade-wise, second half of the year in our mine plan significantly higher grade than the first half of the year. So it's anticipated that the second half of the year would be higher than the first half of the year, same as -- basically, the same as it was last year. And so first off, the grade will pick up in the second half of the year.
The second point, overall, we've assumed in the budget or it was budgeted, not assumed, budgeted, that we are pretty flat in terms of throughput i.e., we're doing around about 125,000 tonnes per quarter.
We certainly think there's a potential to see in the second, third and not so much in the second, but more in the third and fourth quarters that, in fact, we can do better than 125,000 tonnes. And that will be about, a, the mining.
We actually think from a plant perspective, as I said, we've probably got an extra 10% that we can get through. So personally, I'll be disappointed if we can get at least 130,000 tonnes per quarter in the third and fourth quarter which is an extra 5% or thereabouts through the plant. And obviously, to get it through the plant, you got to be able to mine it as well. So there is definitely potential. Is there potential to go beyond there? Well, talk to a couple of our mets and they'll tell you they can do better. We'll see on that one.
Alexander Terentiew
Okay. Great. And just one last question then on exploration. Great to see you guys have started drilling on A1. Can you maybe just give me a little bit more details on the plan there? So first assay is probably, I guess, June or so that you guys later in May or June, you get back? And how many holes or meters you guys have planned on A1 for this year?
John Lewins
Okay. So the first program, I think we've got 12 holes, 500 meters planned, and it's a pattern drill. Pretty much the same as we did at Blue Lake where we did an initial program of up to 500-meter deep holes, and then we followed that up to the second program which were deeper holes based on the results of those of the first holes where it gave us vectors of where we should focus a target for that targeting that potassic core.
And we're looking to do the same sort of thing at A1 so we're not going to immediately hit it with 1,000 meter deep holes or whatever. We're looking at that initial pattern as a sale of 12,000 or 500-meter holes. That will be really through second quarter, third quarter. We expect to have that completed in the third quarter. Obviously, we'll be pulling all the results in and again, same as we did at Blue Lake, we've got a couple of consultants that we use as well because, as you're aware, Alex, it's not just about what did you get in terms of grades, assays of copper gold, whatever.
It's also about what are you seeing in alteration what are you seeing in your , et cetera, et cetera, and using all of that information to help us target those where we want to be drilling in that second program we're drilling. So hopefully, that answers your question.
Operator
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, thank you -- thank you for that, Ari. So I think we've come off an extremely strong quarter. I mean, records in ore mined, ore processed, total tonnes mined, development meters. It really was quite exceptional when you then bring in 2022 beat of cash cost and all-in sustaining cost, it really finished off the year strongly and set us up for this year and going forward.
Added to that, we had the renewal of our mining license for 10 years, which when you consider that it was renewed almost 2 years ahead of schedule, we've actually set ourselves up with 12 years from when the renewal occurred, which, of course, immediately allowed us to move into Stage 3 and Stage 4 expansion, which potentially sees Kainantu become the to Tier 1 mine that we all know it has the potential to do. This year, we've obviously -- now moving into that expansion mode. And importantly, we've got a massive exploration program on the go. We are the largest explorer in Papua New Guinea. I think we spent more than almost everyone else put together currently running 11 rigs, and that potentially will step up.
We'll be going into new areas that we have not drilled before. It's a bit like Star Trek to boldly go where no man has done before or women. But the exploration certainly, I think, is -- there's a lot going on there. That's really exciting for us. I think, for 2023.
I think finally, I'd just like to record and recognize our gratitude for the outstanding contribution that our late Chairman Tookie Angus made to this company. To have known and to have worked with Tookie really was a privilege we stand as a company where we are today in no small part due to his leadership.
I would say that, fortunately, a major part of Tookie's focus was actually establishing a talented and cohesive Board of Directors, and we now have that which will enable us to move forward, I believe with confidence, but he will, nevertheless, be solely missed. So thank you for your attendance today and all the best to you and your families. Thank you.
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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K92 Mining, Inc. (KNTNF) Q4 2022 Earnings Call Transcript