David James | Business Advantage | 4 December 2018
Canadian miner K92 has found new ore and is ramping up its operations at its Kainantu mine in Papua New Guinea’s Eastern Highlands Province. In this exclusive interview, Chief Executive John Lewins tells Business Advantage PNG that the company is now profitable and has an anticipated mine life of over 15 years.
New ore discoveries are at the heart of Kainantu’s current health. When the mine was bought by K92 from Barrick Gold in 2015, John Lewins says the focus was initially on restarting mining operations on the Irumafimpa ore body.
The expectation in the previous owners’ original design was that this would yield about 20 grams of gold per tonne, but it was closer to 8.5 grams.
‘It was still pretty good but, when you are expecting 20, it is not so good,’ he tells Business Advantage PNG.
‘It was recognised that this ore body was also relatively difficult mining, in terms of narrow veins, clay and other technical issues.
‘It was therefore the intent of K92 to bring the previously unmined Kora ore body into production.’
Kora and Kora North
In mid-2017, K92 drilled the first diamond drill hole from underground, looking for an extension. Attention then turned to the Kora ore body, closer to the existing underground workings, which proved to be more prospective—and ultimately profitable.
Lewins says the initial discovery hole had yields of 11.7 grams of gold per tonne, 25 grams per tonne of silver and 1.2 per cent copper.
‘We developed out to this extension area, designated “Kora North” and mined a bulk sample which was treated through the existing process plant in October 2018, achieving recoveries of 92 per cent copper and gold from that sample.
‘So, we switched our mining to basically focus on Kora and in January of this year we were 100 per cent Kora.
‘At the end of January, we declared commercial production and made a profit. The first quarter for us was profitable, the second quarter was profitable, and the third quarter is not out yet but it is definitely positive cash flow.
‘So, for the year we will make money.’
Lewins says K92’s cash costs are ‘running at around’ US$560 an ounce (the current gold price is US$1213 an ounce).
‘All in sustaining costs, bearing in mind that we are developing a brand new mine effectively underground below US$800 an ounce.
‘We are giving (production) guidance this year of 42,000-46,000 oz. We will make that.‘
Lewins says the original Kora deposit contained an estimated resource of at least 1.65 million ounces of gold, and an additional Kora North is expected to be over one million ounces.
‘We are looking at a 15-to-20 year life for an expanded operation, treating 400,000 tonnes per annum and producing over 100,000 ounces per annum. And (production of) 400,000 ounces per annum, not the current 200,000 per annum.
‘We are planning an expansion that will cost about US$15 million to double throughput,’ says Lewins.
‘We are continuing to drill the Kora and Kora North deposits from underground, with a target of doubling the resource. All of this has been underground drilling.
‘We have a third rig coming in to extend the drilling.’
Lewins says the company will conduct a preliminary economic assessment by the third quarter of next year, and expects to have an estimated total resource of five million ounces (including Irumafimpa). K92 is also planning further exploration of the Kora ore body outside the existing mine lease.
Lewins says K92’s share price has doubled in the past year.
‘A company like ourselves, having five million ounces at relatively high grades at 12 grams per tonne—and in production in a market where quality assets are in short supply—is an attractive investment.
‘From a shareholder perspective that is positive. We have started delivering.’
‘K92’s share register is 45 per cent institutional investors and 40-45 per cent retail investors, mainly out of Canada.
Lewins acknowledges PNG is a challenging environment.
‘We are in a better position than most. We have got grid power, for instance.
‘We have got a sealed road, a highway which runs from the port of Lae to about 8 kilometres from the site.
‘We have a government airstrip right next to the road as well. We have good infrastructure.’
Up in smoke?
One challenge is entirely unforeseen, however.
‘Something that is totally out of left field is the legalisation of marijuana,’ says Lewins.
‘This has created a massive marijuana boom in Canada.
‘Hundreds of millions of dollars are going into investment in marijuana and that money is coming out of the mining sector.
‘If you look at the TSX and the ASX (Australian Securities Exchange) over the last 18 months; for the first time in living memory, the ASX has actually been outperforming the TSX in terms of the junior mining sector.’