keeping up the momentum down under as gold miner continues to reduce costs and improve grades

• New, quality gold producer in Western Australia
• Robust financial position driven by strong free-cash-flow generation
• A large and expanding resource base

What Karora Resources does:

Karora Resources Inc (TSE:KRR) (OTCMKTS:KRRGF) (FRA:5RN1) is now a “top tier” junior gold producer in Western Australia having started its transformation - when known as RNC Minerals - with its purchase in 2019 of the Higginsville Gold Operations (HGO).

The group is focused on growing gold production and reducing costs at the integrated Beta Hunt Gold Mine and the Higginsville mine and its associated treatment facility.

At Beta Hunt, a robust gold mineral resource and reserve is hosted in multiple gold shears, with gold intersections along a 4 kilometre strike length remaining open in multiple directions. Meanwhile, Higginsville has a substantial historical gold resource and highly prospective land package totaling approximately 1,800 square kilometers (sq km).

The Higginsville treatment facility is a low-cost 1.4 million tonnes per annum (Mtpa) processing plant which is fed at capacity from the underground Beta Hunt mine and open-pit Higginsville mine.

In August 2020, Karora further expanded its portfolio after completing its acquisition of the Spargos Reward project tenements, which cover 33 square kilometres located in the Eastern Goldfields of Western Australia, 35 minutes by road from the Higginsville gold operation.

On top of the existing historical resource, there are a number of historic workings within the project, the most notable of which is the historic Spargos Reward Gold Mine which produced 105,397 tonnes at an average grade of 8.56 grams per ton (g/t) of gold in the 1930s and 1940s, with limited gold extraction since that time.

The Spargos gold project contains a historical JORC (2012) Mineral Resource Estimate of 112,000 ounces (785,800 tonnes at 4.4 g/t) indicated resource and 19,000 ounces (151,000 tonnes at 4.0 g/t) inferred resource.

How is it doing:

Karora Resources reported its 2020 full-year results on March 19. 2021, which showed a very strong performance, with record net earnings and continuing reductions in operating costs last year.

For the year to end-December, 2020, Karora posted net earnings of C$88.1 million (M), up from a loss of C$6.9M for 2019 on revenue of C$239.1M, up from C$128M the year before.

Across the group, Karora’s all-in-sustaining costs (AISC) for 2020 came in at US$1,026 per ounce, which beat the company’s annual guidance of between US$1,050 and US$1,200 per ounce, and was 11% lower than in 2019.

Gold production from the Beta Hunt and Higginsville mines in Western Australia in 2020 came in at 99,249 ounces (2019: 64,277 ounces), which beat the top end of guidance of between 90,000 and 95,000 ounces. Gold sales for 2020 totaled 98,656 ounces (2019: 65,225 ounces). The company ended the year with a record C$79.6 million in cash (2019: C$34.6m) and said it was well placed to carry out its growth plans.

For 2021, Karora said it expects more growth and its output guidance for the year is for between 105,000 and 115,000 ounces, representing an around 20% increase on 2020.

The company expects gold grades to increase over the course of the year as it begins to mine higher grades at Higginsville Central and after the anticipated start-up of mining at the high-grade Spargos open-pit project in the second quarter.

Karora recently wrapped up a 12,000 metre (m) drill program at Spargos which delineated high-grade gold mineralization within 100m of surface along a 400m strike length. The drilling extended the high-grade gold plunging shoot to over 300m down-plunge, intersecting 6.1 grams per ton (g/t) gold over 14m, including 8.6 g/t over 5.7m.

The company also reported what it called “encouraging” Phase 1 drill results from initial scout drilling on the Lake Cowan area just outside the company’s Higginsville Gold Operations in Western Australia, which included 3.64 g/t gold over 16m. And Karora has revealed new high-grade gold intercepts from an ongoing drill program at the Larkin Zone at its Beta Hunt mine. Drilling there intersected 19 g/t gold over 9m.

In late 2020, the company unveiled a first consolidated reserve and resource estimate for its two main assets – Beta Hunt and Higginsville – which showed an increase to the proven and probable (2P) gold reserve of 334% to 1.33 million ounces. The consolidated measured and indicated (M&I) gold resource, meanwhile, was boosted by 167% to 2.52 million ounces.

The estimates did not include the Spargos Reward project, for which it said a resource and reserve will be completed in the first half of 2021, to include the new high-grade zone. 

What the broker says:

Following Karora’s recent 2020 earnings statement, Stifel GMP repeated a ‘Buy’ rating and C$5.85 target price on the miner’s shares, noting that that the company was continuing to “build momentum” as it printed its lowest all-in-sustaining-costs (AISC) in two years and continued the trend of six consecutive quarterly AISC improvements.

The company’s AISC of US$912 per ounce was slightly better than the broker’s estimate of US$1,079 per ounce.

In a note to clients, the Stifel analysts said: “With the second-largest land package in the Kalgoorlie Belt, KRR’s existing mineral inventory is already materially larger than its processing capacity. Look for their growth plan coming out in 2Q21 to outline how they expect to bring these ounces forward.”

They also pointed to the “exceptional” acquisition by the company of the Higginsville mill, where the company has identified a number of opportunities for expansionary avenues, which could see the plant increase throughput capacity from the current 1.3 million metric tonne per annum (MMtpa) run rate to between 2 and 3MMtpa.

“Management has intimated that earthworks have begun in activating the recently acquired high-grade open-pit Spargos Reward Project, which should provide grade accretive feed to the company’s consolidated Western Australian operations by mid-year,” the analysts added.

They said they also see costs dropping and grade increasing throughout 2021 for Karora, meaning free-cash-flow (FCF) should increase towards 4Q21

Inflection points:

• Start of mining at Spargos open pit
• Improvements to Higginsville mill capacity
• More exploration results

What the boss says:

In the statement accompanying the 2020 results, Paul Andre Huet, Karora’s chief executive, said: “With Karora’s record cash balance of over $79 million at the end of 2020, we are in a very strong position to deploy capital into our organic growth initiatives for 2021 and beyond. Plans are well underway to expand production capacity at our Higginsville mill in 2021 by approximately 15%, or 550 tonnes per day, to 1.6 million tonnes per annum.”

He added: “We are off to a good start to 2021 with production tracking well to our plans. Deployment of capital into earth works at Spargos in preparation for mining by mid-year is proceeding as planned, as are our other initiatives in preparation for our planned Phase I mill expansion. We are excited about our outlook beyond 2021 and we expect to announce our multi-year growth plan and guidance to the market during the second quarter.”

Contact the author: [email protected]

Story by ProactiveInvestors