K92 Mining Inc.

Thank you, operator, and thanks, everyone for attending K92 Mining's first quarter 2021 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 bear in mind that all dollar amounts mentioned in the conference call are in United States dollars unless otherwise noted.

Now I'll turn it over to John to provide you with an overview.

Thank you, David, and welcome everyone. The first quarter the company made considerable progress operationally and financially and importantly on the exploration front.

This was achieved despite multiple short term challenges which were somewhat unexpected. I am pleased to report that we've been able to deal with all of these challenges, thanks primarily to the efforts of our people on the ground.

Operationally we see performance strengthening through the second quarter and then into the second half of the year. Primarily first of all is our safety and one lost time injury in 2020 and that sees K92 continuing to operate one of the best safety records in the Australasian region since we started operations.

Our focus I believe, has been relentless in terms of occupational health and safety and we continually look to improve. Large focus as you would expect during this time has been on the many challenges that are posed by the COVID-19 pandemic and I believe that we have been particularly successful in addressing some of those challenges.

When we look on the production side, we delivered 18,654 gold equivalent ounces with the operation delivering a record mill throughput 73,221 tonnes processed albeit and have had reduced head grade of 8.5 tonnes. Rate reduction was due to treating significantly high portion of low-grade stockpile and we had to, and we budgeted and that was a result of the challenges that I referred to previously COVID-19, accident and a temporary shortage of bulk emulsion, all of which has been resolved.

So when we compare to first quarter 2020 gold equivalent production decreased by 6% while our throughput increased by 54%. Importantly, I think despite the operational challenges in Q1, we saw a 6% increase in mill throughput and a marginal increase in our total material milled in comparison with the previous record quarter.

Underground development however was comparable with the first quarter of 2020, but 18% [indiscernible] on that record quarter of Q4 with the majority of the meters that were reduced coming from a reduction in the work undertaken on the twin incline [ph] and that was very much a decision taken so that we could focus on the operational side and production side during the challenges that we faced. When we look at the performance of the stage 2 process plant in the first quarter, I think that has been particularly encouraging, and on the plant expansions you may recall was commissioned late in the third quarter 2020, nameplate capacity 400,000 tonnes per annum, 1100 tonnes per day shows doubling of capacity.

January and February we saw six consecutive weeks where the throughput averaged 1100 tonnes a day, 18 days the average was actually above 1100 tonnes per day and in eight days above 1200 tonnes per day. We also recorded a new record daily record of 1315 tons through the plant.

So that certainly indicates that there is potential for the process plant to consistently deliver significantly high throughput than the nameplate and that obviously has significant implications going forward in terms of production capacity. Also during the quarter we saw that when we look at our course of we saw a look at our reconciliation open-source great control models, again we produced more ounces than we predicted being driven largely by grade stock.

This has been a consistent theme, both in the original model and in the April 2020 model, and so again producing more ounces than we called for. Looking at those challenges that we spoke about during the first quarter, bulk emulsion explosives, logistical issues associated with bringing explosives into PNG due to a number of issues, major one being the explosion that many people may have seen that in Beirut, which made the movement of explosives more controlled.

Pleased to report that we have overcome that issue working with the supplier who has now almost completed a facility in Lae. So we will now have a domestic facility supplying our bulk emulsion to the [indiscernible] and that's only 200 and something kilometers away.

In addition we had a loader incident which impacted our stoping backfilling activities for approximately three weeks during the period. We have completed the investigation with the Department of Mines and put in place some additional procedures and what have you, we're solving result and we're back to long haul stoping at [indiscernible].

And then in early March we had the Australian Government announced a temporary suspension on travel of FIFO expatriate workers in and out of Australia to PNG. We’ve worked with the Australian government through the PNG Chamber of Mines and Petroleum to resolve that issue.

We've enhanced some of the protocols that we use as an industry and as a result, I’m happy to say that just last week we had approval to recommence our FIFO operations and in fact we’ve flown in first set of FIFO into the country and so we’ve seen that particular issue resolved as well. So, with that, I'll now hand you over to our Chief Financial Officer, Justin Blanchet to discuss the financial results in the quarter.

Thank you.

Thank you, John and hello everyone. During the first quarter, we had revenue of $29.5 million, a 7% increase from 2020.

The increase in revenue was attributable to an increase in production and an increase in the realized selling gold price of 1735 per ounce compared to 1502 per ounce in 2020, offset by negative adjustments to the fair value of settlement receivables from previous periods. As of March 31, 2021 there are 2379 ounces of gold and concentrate inventory, a decrease of 3072 gold ounces when compared to December 31 due to the timing of sales.

In the first quarter, cost of sales was $20.9 million compared to $15.2 million in 2020. The higher costs were primarily due to increased operational activity as illustrated by the significant increase in ore processed.

In addition, the company incurred costs related to the COVID-19 pandemic including additional pay for employees completing longer rosters at site, additional costs related to the movement of personnel and supplies, and additional safety and medical related costs. Quarterly cash flow from operating activities before changes in working capital was $7.7 million compared to $12.5 million in Q1 2020.

As at March 31, we had a record $66.2 million in cash and cash equivalents while spending $4.7 million in the expansion capital for the quarter. The company fully repaid the outstanding loan from Trafigura during the quarter leaving the company with no debt.

As John mentioned, for the quarter, the Kainantu gold operations produced 17,774 ounces of gold, 426,153 pounds of copper, and 7925 ounces of silver or 18,654 ounces of gold equivalent which is a 6% decrease from 2020. We sold 21,879 ounces of gold, 394,635 pounds of copper and 7463 ounces of silver.

We incurred a cash cost of $745 and an all-in-sustaining cost of $1038 per ounce, which was significantly below our realized gold selling price of 1735 per ounce. Our Q1, 2021 cash cost per ounce decreased to $745 or a $752 in 2020.

The decrease in cash cost was due to higher amounts of gold sold during the quarter versus the prior period and a successful ramp-up of the 400 K [ph] expansion allowing the company to achieve better economies of scale. These were offset by lower production due to the reasons outlined above.

In addition, the company incurred costs related to the COVID-19 pandemic. It is important to note that after commissioning the Stage 2 plant expansion in late Q3, 2020, we have seen a significant compression in our total unit cost per tonne processed, approaching $24 a tonne.

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.

Thank you, Justin. Moving on to the twining plant.

During the quarter, for the first two months we saw considerable progress being made, very strong development, advanced rates with the, further the two inclines at approximately 370 meters. However, during March, we cut back significantly on work on the twin inclines to focus primarily on production, as a result of the aforementioned challenges primarily being restriction in FIFO workers.

That has obviously continued through into the first half of the second quarter, but with the lifting of the travel restrictions, we’re now picking up again in terms of our development from the twin incline. Let me look on the exploration front, I think it would be fair to say that we’ve been very pleased with the progress both in the high grade vein systems at Kora and Judd, and also in main porphyry targets at Blue Lake.

Looking at Kora, mid-February I think we announced results from another 35 holes which were both infill and step-outs being to the site. And this is also updated resource which we’ll be feeding into our feasibility study, looking at completion in Q4.

The results delivered multiple hybrid intersections, the best of which I think was 7.2 meters 65 grams per tonne gold equivalent with a very high hit rate, so 25 of those into sections it’s exceeded 10 grams per tonnne gold equivalent. Results also featured a number of veins that are currently not in our existing resource, that includes the 7.8 meters at 21 grams per tonnne gold equivalent in the K2 hanging wall and just over 3 meters and 15 grams per tonne in what we designate the K3 vein.

Now in September 2020, we announced the first significant exploration undertaking by K92 on chart [ph]. We had over 108 meters development that we reported on the 1235 level and that we had also taken out sample.

January, at the end of January of this year we updated that we developed 288 meters long strike with the additional 175 meters having average 3.7 meters vein thickness, 15.4 gram per tonnne gold equivalent. And the last 65 meters of that had actually average 3.8 meters at 18.7 grams per tonnne gold equivalent.

So, over the entire almost 300 meters development that we had done to that point in time, the J1 vein had averaged 3.5 meters and over 10 grams per tonnne gold equivalent. As, a result of those outstanding results from that development, we undertook a very limited drilling program because we were very focused on Kora and that resource update, but we undertook a limited drilling program and results from that, I think were, extremely encouraging.

We included JJD0006 which gave results of 7.25 meters at 256 grams per tonne of gold and that was approximately 50 meters above the development. So, when we look at that development, I think to-date we’re seeing strong continuity and high-grade including in the phases as you can see here, 5.5 meters at almost a 110 gram per tonne gold equivalent.

And from a geological perspective very similar to Kora, but with probably better geotechnical characteristics thus far. To say we are encouraged by the results of Judd is probably an understatement.

We’ve got multiple veins intersected. The geology, as I said very similar to Kora and it's high-grade.

It’s underexplored. The strike length is to 2.5 kilometers, so it offers tremendous upside potential.

We’ll be targeting Judd with far more aggressive drilling as we reach the completion of the Kora resource updates. So, look towards the end of this year’s aggressive drilling at Judd.

Finally, in terms of our porphyry target, the Phase 2 drill program for the copper-gold Blue Lake, porphyry target, shallow vector drilling, our program is now almost complete and the next step is to evaluate that potassic core, which we'd obviously expect to be the higher grades portion of the system. We currently got two drill rigs working at Blue Lake and at this point in time, we anticipate in the second half of the year we will start the deeper drilling targeting that potassic core.

So I think, the results both from the high-grade vein field and from the porphyry drilling have been from our perspective, exciting, highlight the significant and near-term potential, as well as the big system upside of the porphyry and with only approximately 20% of our vein field strike lengths being drilled so far, I think we still have an enormous amount of drilling and an enormous amount of potential, both along strike and the depth. Similarly when we look at our porphyry, I think we have drilled two or three of a dozen targets to date, so again, still an enormous amount of work to be done and an enormous amount of upside.

So, with that operator, I think if we could commence the Q&A session. Thank you.

Thanks, operator. Thanks for taking my call.

My question here today, John I've actually got two questions on sort of the exploration and the drilling. You mentioned a resource update coming here with Kora.

Are we to expect any part of Judd?. The stuff that you've done in the development on and some of the drilling onto to be incorporated in that resource or any of the other, sort of veins peripheral to the mine to be included in that resource or is it just a Kora resource update?

Tom, thanks, thanks for that. In terms of the resource update, we do expect to have some Judd in that resource.

I think it will be limited because it will be only a limited drilling program completed prior to the resource update. But certainly, in and around the development which has been flagged with something over 300 meters in [indiscernible].

We will put a resource around that. However, it's really post getting that resource side we anticipate really getting aggressively into drilling Judd and I mean, we've got now six rigs are underground, and we'd expect post the core results three of those at least will be focusing on drilling Judd and bringing Judd into resource and three of them will continue with Kora pushing to the site and also spending measuring indicated and potentially down drip [ph] as well.

Okay, very good thanks for that. Just one other question on the porphyrys.

You mentioned, toward the end of the back half of this year to do your deep drilling on Blue Lake. First question on Blue Lake, have you guys sort of decided where you're going to drill, like do, did phase 2 kind of give you enough evidence?

And then more regionally, are you going to look to apply this same sort of model where you do the vectoring and stuff to say A1 for example.

Okay, in terms of Blue Lake, we did the first program as you are aware last year, finished the program last year, and that gave us certain vectoring into where that potential capacity core was, but it also highlighted that we needed additional drilling to really give us a full three dimensional model. We certainly believe that with the drilling that we're busy completing that, it will give us very strong vectoring in terms of where to target that potential core and I think we pretty much said that we anticipate drilling it second half of this year putting in people as it will be up to 1000 meters deep and very much will be sitting at this point in time.

I think we will have some updates of drilling results out in the near future. I would say that while we've continued with our exploration program with certainly cause of the restrictions that we've had in terms of personnel COVID and a movement of people we're somewhat behind where we wanted to be in terms of actually doing the assessing of all the results that we've got and doing some of that -- some of the other work on the core, so really drilling has gone ahead.

We're buying where we want it to be in terms of just logging an [indiscernible]. In terms of applying that to some of the regional targets, such as A1 Headwaters, certainly the overall model of drilling, putting together a 3D model, which then allows us to vector in towards that potassic cores is very much the way that we would see ourselves approaching it.

Do you have a timing on when you'd maybe look to step to your next porphyry target? Obviously you are going to be doing your deep drilling at Blue Lake, but is there back half of this year or maybe next year to look to do some of the more, some of that shallow drilling at A1 or another porphyry target?

I think at this point in time, we'd be saying next year.

Perfect.

Looking at where we sit with things like COVID and all the rest of it, and making sure that we've got a tight program that we maintain. Certainly, as I think many people are aware we operate the mine as effectively a COVID bubble.

So anyone coming to site needs to quarantine for a week. When it comes to exploration, the exploration people actually don't come to site, and we try and operate the drill sites that we're running as bubbles themselves, which is somewhat more challenging, obviously because they are smaller areas and there is interacting with locals, so it is more difficult to maintain the same sort of COVID protocols that we're using at the main operating site with interaction through helicopters and various other things.

So we're very cognizant of all those sort of issues when we look at our exploration.

Great thanks.

Yes, good morning, good afternoon guys. So just two questions from me.

First, with the travel ban between PNG and Australia now lifted, how long before you get back to, I guess, where you could say full development plans on the twin incline and exploration activities I understand, you know I appreciate it takes a bit of time, but how long I guess before you get back to plan? And then the second question is a question maybe a bit more for Justin, but he mentioned 2300 I think ounces or so in inventory, but can you give any guidance on the number of ounces that are provisionally priced at quarter end and any details on that provisional pricing?

Thank you.

Thanks Alex. Look in terms of ramping up to where we were previously both in terms of development projects, et cetera and also in terms of exploration, it will take us about three weeks of movement of people to get our people back into a balance.

We've effectively had a number of people who have been on site, or something like almost three months in some cases as a result of that suspension of people. And the agreement that we've reached with the Australian Government, so that was done as an industry, through the Chamber of Mines and Petroleum, which on one of the [indiscernible] we wanted people, that's been involved in the engagement with the Australian Government, Queensland Government and PNG Government.

We're now moving people basically, primarily through a charter, we as an industry move about 100 people a week and we have approval from the Australian Government to move 100 people a week, as an industry, that's beyond the number that is within our operations. We actually need as an industry to move on a weekly basis, but obviously we've all go to operate within that, within that constraint whether we like it and then we change all of our people which wouldn’t possible within those constraints and that 100 people is on top of what government normally allows for movements of people.

So we are provided with a guaranteed movement of people from the Australian Government, which is positive, very positive in our context. So given that, realistically, it will be into June before we're really able to get the entire operation running back well as in terms of between incline and all of the developments associated with operations et cetera, et cetera.

We've also curtailed some of our other projects and realistically that will take us a couple of months to bring all of those things back to the levels where they were previously, and that's more related to looking at the overall COVID levels that we're seeing in the community. So our systems as they stand at present and this is industry-wide and is part of protocols that you could be with government and quite frankly we're in place previously in any event.

We operate a bubble as the operation as I mentioned. Anyone coming to the site, whether you're coming from overseas or whether you're coming from within PNG you have the weekend quarantine.

In order to go in quarantine you have to first of all pass a COVID test. If you're COVID positive you cannot go into quarantine because you obviously don’t want to bring COVID positive people into quarantine.

You're then quarantined for the minimum of seven days you've tested before you then go on to site. So our site is totally COVID free.

We have, I think currently I think we've got three positive cases within quarantine. And we do see almost every single batch of people coming in, we do see that one or two of those people will be presenting COVID positive before going into quarantine, so they don't go into quarantine.

So we anticipate that we will see some impact on our people, the nationals coming in certainly the balance of this year, and we're planning accordingly. And that means reducing the numbers of people that we have in the cab, et cetera, et cetera, and so that does mean that we'll certainly look at focusing on operations, focusing on the twin incline, and focusing on other projects which are key or the next phase of expansion, and then other peripheral projects will be more opportunistic when we have the opportunity, when we have people and we'll bring them and have them operating.

In terms of exploration, the exploration in terms of the meters that we've been drilling have been largely unaffected at this point in time by what's been happening. It's more been about logging, and the processing of core, because that's been on site and we've had obviously curtailed people, and curtailed some of our key international people.

And again, we would anticipate that it's going to take us six to eight weeks to actually catch up on all of the logging and passing and everything else that we haven't been keeping up during this period.

Okay great, thanks.

In terms of number two, I will hand that one over to you Justin.

Sure, thanks, John. So as of March 31, Kainantu had about 40,000 gold ounces that were subject to provisional pricing with final pricing to be set between April through June.

And so subsequently in Q2 we've already seen a recovery of some of the negative pricing adjustments that we had recorded in Q1.

Okay, that's great. And your hedging program there, I mean you're not locking in, just want to be clear on the mechanics of you are not in a specific price, but you're just I guess protecting it with copper or with gold collars, is that correct?

That's correct, yes. So we sell the puts and purchase cost, so that the net cost to the company is nil, and we purchase them each time concentrate is sold an invoice to our off taker.

Okay.

Hope it is clear. Its price action only for what we are already produced.

It is not a, not looking at a hedging situation or material that we haven't produced. It's merely to a liable effect that when we sell something the actual settlement date is three months later so that we get a provisional payment when we basically get a delay and that's based on the price of the day, the actual settlement is three months later.

We don’t want to get into a situation where let's say we get paid 90% of what we’re going to get paid at $2000 an ounce and gold collapses to a $1000 an ounce a few months later and suddenly we’ve got to pay back a whole lot of money to the -- to our off-taker, so that’s really what it’s there for. Yes.

Okay, now that’s great, thank you. That’s it from me.

Hi there, John and team, thanks for the call. Just a quick question, more related I guess, to the up and coming feasibility study, and I guess news to expand the operation in the next phase of expansion there.

Can you maybe just talk a little bit about what you’re doing on the permiting side and what needs to be done on the permitting side to envisage that level of expansion, that you could see on the feasibility?

Okay, in terms of permitting for the expansion, I mean, we’ve had some discussion with the government. At this point in time, first off in terms of tailings design.

The tailings design is permitted, but as you do any lifts or whatever else you have to go through a process with government. We're going through one right now to do Stage 2 lift, there’s of course this is being done on the tailings design and there’ll be a Stage 3, Stage 4 and Stage 5 on the tailings design.

That is an ongoing process that you go through with government. It is not a permitting of a new dimension, it is simply permitting of the lift, similar to what we would go through in Australia.

In terms of mining lease, there is not an additional permit that's required. We've put in on the basis of the feasibility study and updated mining plans to be approved by government.

It is very much the same government body MRA, very much the same as we did to start Kora in the first place because Kora was a new mining area. The original mine plan was based on the over the input deposit and so it will be a process of simply putting in new mine plans and having them approved.

And we’ve done that already, A, to start Kora and B, then to expand Kora to the 400,000 tonne per annum, so again not a major process. I would also say that it certainly, at this point in time it would be our intent to apply for an additional mining lease which will be an area to the South and then to the East and West, this we're obviously expanding the mine issue that, and that will be a whole process to go through for a new mining lease and that’s really recognizing the current resource sits within the mining lease, we do expect that resource to expand outside the mining lease into distinct exploration areas and as a result of that we would expect to apply for a new mining lease.

Our next, sorry a new mining lease outside of the existing mining lease that is not an essential part of the expansion that’s something more about extending the life and obviously bringing in additional resources into that life of the mine plan.

Great, thanks John. Thanks.

Thank you, operator. I think it would be fair to say that the first quarter of 2021 has in many ways been probably one of the most challenging that we’ve had in the last couple of years.

We’re certainly looking at our expansion, our Stage 2 expansion I think we’ve been very pleased with what we’ve seen from the plant side of things, where we’re certainly seeing potential for 10% to 20% more throughput than we have designed and that is a real positive going forward. Ramping up the mine production to meet that, certainly we don't see within 2021 that any of that additional capacity be only 1100 tonnes per day would come out from underground, it will take [indiscernible] to do that.

And we faced a number of challenges in relation to COVID-19, both in the domestic context, the PNG, but also in the context of moving our people, combined with other issues such as explosives and what have you, and really looking at what we've been able to achieve in those constrained times and those challenges, has been a real testament I think to our people. And their ability to deal with challenges as they have put up the fact that PNG sits right next to Australia although it is a country that we have a FIFO in light of the strong relationship with Australia, between Australia and PNG at the government level and of course frankly the business level has really come to the fore during the challenges and we're seeing from the Australian Government really very strong support for our industry and that has been a key factor in [indiscernible] moving to the situation when we really got total approval for our movement of people from government.

And so that's been extremely positive from our context. So we've had a very challenging first quarter.

We've come through it with record throughput with a new record cash balance and that set us up at very good position going forward for the balance of the year. We do anticipate that we will continue to see challenges in this COVID environment, but I think we've shown with our people and with our relationships that we are equal to meeting those challenges and maintaining the [indiscernible] of this company in terms of the expansion of production moving into Stage 3 and really realizing the potential of what is I think one of the best geological deposit and regions in the world today.

So with that, I'd like to thank you for your attendance today or this evening if you are in my part of the world and look forward to the discussions in three months time when we've completed the second quarter, so thank you for that.