K92 Mining Inc.

Thank you, operator, and thanks to everyone for attending K92 Mining’s first quarter 2022 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 the 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 the United State dollars unless otherwise noted.

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

Thank you David, and welcome, everyone. In the first quarter we delivered strong operational performance and continued to significantly strengthen our financial position with a record cash balance, record revenue and also low all-in sustaining and cash costs.

The mining process plant performed well achieving a second consecutive quarter of Stage 2 run rate and we certainly seen a compression of our unit costs as a result. In the latter part of the quarter, we also benefited from a progressive leaving over COVID-19 restrictions, and that's continued into this quarter.

Lastly, we continue to progress with our organic growth delivering an excellent Kora resource update and also a maiden resource at Judd. In addition, we reported some very exciting drilling results of Kora site and Judd site showing that the known system still has an enormous potential.

On the safety front, we recorded one loss time injury during the quarter. And on a year-to-year basis, loss kind of injury frequency rate continues to trend downward, and we're very proud have the best safety records and the Australasia region.

And we continue to have that strong focus on occupational health and safety and look to continuously improve our safety systems. On ESG, I'm pleased to report that earlier this year, we approved a significant increase year-on-year approximately 100% on our community development budget that covers a wide range of initiatives which includes but not limited to investment and transport, infrastructure, health care, education, agriculture, regional commerce, and supporting infrastructure.

I’ve just returned from Papua New Guinea and I’m really pleased to see how we are progressing with those various programs. Also, while I was in PNG, it was pleasing to see K92 receive recognition in the national newspaper highlighting the positive impact that K92 growth is having on local landowner joint ventures and we're pleased to really have received that recognition but also that the Stage 2A and Stage 3 expansions we're going to see even more benefits to the community.

I’d also like to highlight that K92 has placed a major focus on the greenhouse gas emissions for its ESG reporting. The 2021 Emission inventory TTFB gap analysis is well underway now and a greenhouse gas emission forecast for the Stage 3 and Stage 3A expansions is also being completed alongside our studies.

K92 is very green mine, the carbon intensity is a fraction of the global average per ounce and from these projects will look to improve their disclosure reduce our carbon footprint and develop a carbon targets going forward. For further information on our ESG activities, I'd recommend reviewing our latest ESG report which is found on our website.

And we're certainly very proud of the positive impact that K92 has had we believe in PNG. So moving on to operational performance during the quarter we produced 28,188 ounces of gold equivalent, and we processed just under 100,000 tonnes at a high grade of 9.7 grams per tonne gold equivalent.

Compared to Q1 2021, mill throughput in production increased 36% and 49% respectively. I think a major positive continues to be strong performance of the mill.

In March, record average mill throughput was achieved of 1,219 tonnes per day on average. That's about 10% above Stage 2 run rate and importantly 45% of the day’s quarter or above 1,300 tonnes per day.

What makes it performance even more impressive is that we've not yet installed the additional secondary crusher flotation cells for the Stage 2A expansion. In terms of the key operation quarterly physicals near record mill throughput and total material mined was achieved and development was comparable to the prior quarter.

I think it's important to highlight the strong performance was achieved during the COVID-19 Omicron wave which came through PNG during the quarter. And that did result in some short staffing and absenteeism.

COVID has been affected [ph] now for two years for the whole industry since really the first quarter in 2021 and I'm really proud of our team on site has continued to push ahead and deliver the strong results that we are reporting again today. I'm also pleased to report that our control measures once again held up during that wave and in the latter part of the quarter, as I mentioned, we've been able to start easing our COVID-19 restrictions.

So we no longer require quarantine of any or incoming personnel. And obviously, it results in a significant cost saving and improvement in the productivity of our personnel.

And mitigation systems continue to remain vigilant through testing, screening procedures, additional medical personnel on site, and multi temperature checkpoints around the site and camp and obviously a focus on hygiene. We currently have no confirmed COVID-19 cases on site.

I think in terms of 2022 it's important to remind investors that our guidance is based on the second half of the year, being stronger than the first half driven primarily by higher throughputs rates for the commissioning of various components of Stage 2 pension and some of the sequencing. I'll now turn the call over to our Chief Financial Officer, Justin Blanchet to discuss the financial results for the first quarter.

Thank you, John, and hello, everyone. During the first quarter, we had revenue of $52.4 million, a 78% increase from prior year.

We sold 26,471 gold ounces at an average price of $1,769 compared to 21,879 ounces at an average price of $1,735 in the prior year. As of March 31, 2022 there are 4,848 gold ounces in inventory, including both concentrate and doré, a decrease of 2,299 gold ounces when compared to December 31 due to timing of sales.

Cost of sales was $22.5 million compared to $20.9 million in the prior year or $17.7 million compared to $17.1 million when you exclude non-cash items. The increase can be attributed to an increase in operational activity as we mined 100,124 [ph] tonnes as compared to 55,883 tonnes in Q1 2021, meaning on a per tonne basis costs are lower than prior year.

Q1 2022 cash flow from operating activities before changes in working capital was $22.7 million compared to $7.7 million in the prior year. As of March 31, 2022 we had $79.9 million in cash and cash equivalents while spending $9 million in expansion capital for the quarter and having our strongest working capital balance to date of $92.1 million, the company has no debt on the balance sheet.

As John mentioned, during the first quarter, the Kainantu gold operations produce 24,152 ounces of gold, 1,524,827 pounds of copper, and 28,142 ounces of silver, or 28,188 ounces of gold equivalent. We sold 26,471 ounces of gold, 1,247,967 pounds of copper, and 24,899 ounces of silver or 29,798 ounces gold equivalent.

We incurred a cash cost of $536 and an all-in sustaining costs of $788 per gold ounce which was significantly below our selling price of $1,769 per ounce. Our Q1 2022 cash cost per ounce decreased to $536 from $745 in the prior year.

The decrease in cash costs was primarily due to the successful ramp up of the 400K expansion allowing the company to achieve better economies of scale and a 21% increase in gold ounces sold. It's important to note that after commissioning the Stage 2 plant expansion in late third quarter 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.

Well, thanks Justin. For the exploration growth section of the call, we will begin with Kainantu's production growth strategy.

Stage 2 expansion 400,000 tonnes per annum achieved third quarter of 2021 and Stage 2A expansion which takes us up to 500,000 tonnes ramped up 25% increase is well underway. We're also advancing the Stage 3 expansion which will increase our throughput to 1.2 million tonnes per annum through a separate standalone plant with a feasibility study on that plant to later this quarter early next quarter.

That feasibility study will also look at a PEA case where we have a quite different project scenario with both the Stage 3 and the Stage 2A plants operating in parallel. Stage 2 capital cost as we've previously said it's low $2.5 million, and that's really for the some additional ancillary items around the plant increased underground mining rates are achieved through accelerating some of our Stage 3 sustaining capital.

So at the plant filter press operational, the additional TC-1000 is on site, flotation tanks are planned to be installed and commissioned second half of this year, I'd say based on the strong performance we've seen from the plant today, we will actually be looking to gradually increase our mining rates and our processing rates throughout the balance of the year. So actually ahead of when we actually commissioned those floatation plants.

Now from Stage 2A we obviously expect to get a meaningful boost in terms of our free cash flow generation, which further strengthens our ability to self-fund our growth. Last week, while I was on site, I had the opportunity to tour multiple areas of the operation.

And I'm pleased to be able to share some of those with you on the call today. While underground, I got to see the immediate positive impact that we're having from the latest equipment that we've had delivered, which includes a new jumbo loader and truck and jumbo arriving late in Q1 and the truck and loader arriving in q2.

Now significant amount of additional equipment is also scheduled to arrive in the near term as we ramped up towards that 2A and that includes another jumbo and other loader, truck Shotcrete [ph] machine. And as you track, as I think you previously noted in this presentation, second half of the year is expected to be the strongest in terms of production as we ramp up that additional equipment and also with the scheduling of the stops that we have.

Now since commencing production, we've also had to have a considerable focus on training. And I'm pleased that in K92 one of the things that we've been able to do is set up state of the art training simulators.

Now these simulators have exactly the same controls and display as you would see in practice underground. And you can see that from the two photos here, with a photo on the left showing our training superintendent operating the simulator on the surface.

On the photo on the right is actually one of our miners operating at tele [ph] remodel order underground. Our investment in training is also an investment in our communities.

And through that we generated long term, highly skilled workforce, which is obviously key for us as well in our expansions going forward. So this is very, very much a win win type situation.

Thanks to the mining fleet, we're also upgrading our maintenance capabilities and infrastructure at the mine portal, the large structure with that green blue roof that is our new workshop, under construction; we expect to be commissioning it in the next quarter. And that will obviously increase our capability and our productivity on the maintenance front.

Plant wise, one of the other developments as you can see here is that we are producing gold already on site. We have approval now to export our gold from the Bank of PNG.

So that means that the doré that we produced last quarter and this quarter will not be sold in in Q2 and the video here obviously shows one of the points that was able to attend last week. With that export license granted, we'll be ramping up our gravity circuit and we expect to see an improvement in overall payability and recoveries.

While on site, the mining team achieved another record which this time was the largest single stope blast 7740 times. Now that blast utilized electronic precision detonators that we've recently introduced into our -- blast practices performed extremely well.

Excellent fragmentation and coming out to the site and as you can see they're executing these large blasts will also provide a considerable boost to the mining cycle efficiencies. Also, while underground went into the Judd system, and we continue to make solid progress there.

I visited a new third sub level which is a top 85 level and this particular face delivered significant grade and thickness 5.2 meters 13.8 grams per tonne gold 2.3% copper, so at 17 grams per tonne gold equivalent, as some would probably know, the mineralization actually continued into the well so that particular area was actually slightly wider than that. Not the twin incline furthest incline is now 1112 meters as of end of April.

Performance of development crew has actually been strong over the last three quarters between incline advanced exceeding budget by around 10%. The incline as you may recall being a six by six and a half and a five by five and a half have been designed well beyond our requirements for Stage 3.

Looking at a Stage 4, Stage 5 goes beyond that capability of around 5 million tonnes private if we install conveyors. On exploration during the quarter, drilling was underway at Kora, Kora South, Judd, Judd South also the Blue Lake Porphyry.

Blue Lake Porphyry drilling program has now been completed, just pulling in the last results and compiling all that word into the report which will be out shortly. Now, Kora and Kora South as you can see alongside sections here, there are three key areas like of our focus.

Two of those are short term, one is a sort of a medium term. So short term drilling core aside from the surface, you can see from this long section and absolutely no drilling in that area.

Previously, one hole reported so far, which was the hole that we reported last quarter. And that hole reported one of the most significant exploration results we've seen since that discovery, all in Kora North in 2017.

Second area of focus is drilling Kora South from underground. Now, that will obviously tie in with what we're doing from the surface and help improve our overall knowledge and understanding of Kora South and obviously look to expand our results to the South as we drilled that.

We got a drill [Indiscernible] set up right now, at the very end of our 1,200 [ph] level. And we expect in the second half of the year, start again, pushing further to the size on the [Indiscernible] five levels and actually enabling us to continue to drill further to the south by underground as well.

Third area of focus is what we would call Kora Deeps and the northern strike extension, which will be drilled from the twin incline as we get in closer to the Kora resource. So that's really looking at towards the end of this year.

If you look at the Judd, Judd South vein system exploration program, very much following along similar lines to what we have at Kora with, I guess the distinction that Judd is really about three years behind Kora. When you think about it, Kora North discovery in May 2017 Judd first high grade results reported Q4 2020.

So drilling Judd side from the surface currently underway, as is drilling Judd from underground. And then within the mining lease the majority of our underground rigs are actually focused on drilling Judd in the mining lease and expanding that that resource in the mining lease.

While I was on site had the opportunity to get on the ground and above the ground obviously, as you can see from this chopper video, add to our exploration that is underway in Kora and Judd site. Starting here with the drill rig which is further to the south that's about 530 metres beyond the mining lease.

So the rig is one of our contractor rigs, and this is the first hole that's been drilled from that drill pad. And coming back, second rig 270 meters along strike from the mining lease, that this rig is owned and operated by K92.

This is one of our two surface rigs. And as I think some of you are aware, over the years, we've invested significantly in drill rigs, all of the underground rigs are owned by K92 and two of the three surface rigs.

And then lastly, we're coming up to the third rig working on surface, 133 meters from the mining lease also owned and operated by K92. So we have expanded this program from one rig to two rigs, and now to three rigs.

We've done that in a relatively short period. And that has been an excellent outcome from our exploration team on the ground.

So we're going to be continuing to drill this area all of this year and well into next year. So lastly, we conclude with our regional advanced MobileMT deep penetrating airborne geophysics results flown late in Q4 2021.

And these results really have been extremely significant in terms of recognizing the exploration upside of our project. The high connectivity on it, you can see delineated extends from Kora and Judd belong Kora Judd side into what we call the A1 Porphyry interpreted A1 Porphyry.

But importantly, it extends beyond that to the south with a strike length of something like five meters. So that whole area to the south is being integrated into our exploration plans for next year.

I think the geophysics also identified a prospective Porphyry belt, and that correlates well with non-targets in A1 and also Blue Lake. And as noted earlier, Phase 2 drill program and Blue Lake is completed with processing and compiling that data right around geophysics.

As you can see, they have shown a very strong response in A1 even stronger than that we’ve seen at Blue Lake. And that makes it a high priority target for us in the near term.

And we plan to commence surface sampling program A1 later this year ahead of the drilling program. So then Operator, I'd like to commence the Q&A session.

Thank you.

Hi, good morning, guys. Congratulations on a really, really strong quarter.

Just a quick question John, can you give us a sense of timing when you guys are going to be delivering the PEA and the feasibility study? Are we looking at later this quarter or maybe early next quarter?

Yes, thanks, Chris. Yes in terms of the DTS and a PEA, it's either late this quarter or very early next quarter.

And we're going to put them both out at the same time. So originally, the plan was to get the DFS out first, and then the PEA.

But bringing them both together just gives us a little bit more work that we need to get finished. So it'd be very late this quarter, early next quarter.

Great. And I guess the next question, just to find on the largest.

What about the mining lease renewal? Can you give us a little update on that?

Mining lease renewal. Okay, so the mining lease, as I think you're aware, is it actually runs through until late 2024.

We actually submitted an application for renewal earlier this year that has gone through the process with the MRA. And we've had the warden’s [ph] hearings last month, late last month, which is timing wise, is actually one of the quickest we've seen it get organized with that.

We now have, as I think many people will be aware, we now have elections in PNG, the roots have been issued, which means you've got a government that's on caretaker mode. So we won't, we don't believe that we can get a renewal until the elections are finished and the new government is established.

Although I did meet with the MD of the MRA last week, and it'll still go through their process, they'll go through the MSC which is the Mineral Advisory Council. And his advice was seasonal issues without renewal.

So certainly our expectation is that we should get it later this year.

Thanks, John. Thank you.

Hi, congrats on a really strong quarter. And thanks for taking my question.

Just one question for me around your cash costs and AISC, very, very strong cash costs and AISC this quarter falling well below guidance, wondering if full year guidance is starting to look a little bit conservative on those fronts, or if we might expect to see a little bit higher costs as we progress through the year.

Thanks, Michael. I guess a couple of things one, in looking at our capital expenditure we certainly expect that the quarters going forward will increase in relation to sustaining capital.

Especially things like development and what have you. So certainly, our expectation is in terms of AISC, our, our guidance’s is fairly reasonable.

Recognizing it is quite a wide, wide number as well. In terms of cash costs, I think, I think we were very pleased with the numbers that we got in Q1 as we were with the sustaining but likewise, we are increasing the number of people that we're employing and a few other things like that which will obviously have some impact on cash costs.

So I think we're still fairly comfortable with the numbers that we've given out to the market.

Okay, perfect. That's, that's very helpful.

And that's it for me. So congrats again on a very strong quarter.

Thanks for that.

Thank you, operator. And good morning, John, congratulations on a strong start to the year.

So my first question just has to do with this the gold doré export license? What is your doré in inventory at the end of Q1?

Should we expect potential lift to Q1, Q2 sales with this export license now in hand?

Yes, thanks Don. I think we had a couple of 1000 ounces, gold doré, we have not been pushing the gravity circuit to operate full time until such time as we actually had the gold export, but I said gold export license per se, it's just a modification of the existing gold export license to allow us to do doré as well.

So there'll be some impact, but it won't be a huge impact on Q2. And of course, going forward, we expect to get around 10% to 20% of our gold coming out in doré.

And so we'll have some impact, obviously in relation to the abilities and also in relation to recovery as well, we think with a slight improvement in recovery from running the gravity circuit as well. So had we been running the gravity circuit to full time, we would have produced more answers, but we didn't actually want to hire stock sitting, sitting on site while we're waiting to get our approvals.

Okay. Okay, it's encouraging.

Now just moving on elections in June, so it's getting closer, not expecting this to really move the needle. But is there any recent developments that might have any read implications on K92?

Yes, with the election process in PNG is actually quite drawn out. The wits [ph] have now been issued.

And nominations have actually been extended by a week. And that was a result of last week, there was a quite serious motor accident in which the deputy prime minister was actually fatally injured.

So that was that was reasonably impactful. And as a result, they've extended the nominations by a week, it doesn't change the timing of the elections.

Elections in in PNG are actually very strict in terms of the timeframes. And they run five years, generally get early elections or anything like that.

We haven't seen anything in what's happening with the election process that really says it's going to have any impact on K92. Or really on the mining industry full stop.

Okay…

The turnover that you get in PNG is quite high, get about 54% of sitting members get returned. So you actually get a quite high turnover, lot of new MPs every time you have an election.

But we don't expect to see much difference in terms of the strength of the relevant parties. And as I think you're aware, PNG politics is a little bit different to most places in the world.

It's a coalition of partners that get into government. And yes, they may or may not be a change of PM, quite frankly.

And I even if the parties stay the same in terms of the numbers, you could still see a change in PM. So yeah, we can see.

Okay, sounds good. And then just finally, on Stage 3, expansion CapEx, of course, we have an estimate from the PEA, and then there's another estimate that will be pending with the DFS.

We're in this inflationary environment. Can you provide any color on inflation, or is there any items in this in this spend that that might be subject to inflation or of concern?

Look as you've said, we are seeing CapEx inflation across the board, especially in things like steel and what have you. Certainly, from our perspective, I think one of the things that we are seeing is not so much in the inflation side of things.

But in the lead time, where things like mills, crushers, float cells are the longest they've been for at least a decade. So there is some lead time issues that we're, we're aware of, especially for those particular items.

And of course, as you know, a lot of that equipment is actually manufactured primarily in China. In terms of cost inflation itself, the numbers that we're aware of, and I've made the point that we don't have the CapEx numbers yet for the DFS, but in just general discussions with our various suppliers and contractors, and consultants, you're seeing CapEx inflation of 10% to 20% and all that, there have been several projects that have come out with quite significant increases in CapEx.

When you break those numbers down, the actual inflation is sitting more around the sort of 20%. There are various other things that have driven many of the increases in CapEx and scope and all the rest of it.

So I guess the other point would make is, from our perspective, yes look, we have increased the size of the project. So it is 20% bigger.

It is over two years since you put the PEA so we do expect to see fairly significant inflation on the numbers. But they're coming from a low base.

Yes, of course. I think if you look to PEA, we had about 125 million in CapEx, another 115 in sustaining costs, so overall CapEx 240 million.

That's obviously going to go north of 300. There's no two ways about that.

But I don't have absolute color on it yet.

Yes. Okay.

Okay. Well, that's, that's helpful.

Appreciate that. And good luck in upcoming quarters.

That's all for me. Thank you.

Thanks, Don.

Good morning, guys. Great to see solid core reviews.

Couple of questions for you, on the cost just wanted to circle back to that, can you just remind me there, just give me some clarity then on the capital spending, growth and sustaining for the rest of the year? As I can, one of the earlier callers asked and noted how costs were quite good.

And I understand costs are going to go up, but can you just remember, CapEx and sustaining and growth CapEx, what your plans are for the rest of the year?

Okay, so we've, I think we've budgeted CapEx sustaining costs is around 60 million for the year but more than that. And of course, that includes our twin incline, additional capital equipment that's coming in for underground.

We've got a tailings dam lift that we're busy with right now. And camp expansion, new maintenance workshop at 800 portal.

So we have a lot of a lot of projects on the goal right now. And then, of course, the, the other one would be that we've got a DFS that's been completed, we expect to very quickly after that completion, put in orders for long lead items.

And that isn't in this year's budget, simply because the numbers are unknown, and obviously requires approval of the board to go ahead with the DFS. So…

Okay. I think you had 46 million in growth CapEx is that that's not related to the expansion at all.

That's just development and other projects, I guess.

Yes, well when you're running an operation and you're also going to expand it you do get into the situation of saying, Well, is this expansion capital? Or is it sustaining capital?

In some cases, because the expenditure that you're incurring, you would not incur at that given time, but you would have to incur at some point. So, another CapEx item for late this year is we've got a race for venture half going in, which 600 to 700 meters, I think it's a five minute time, so it's a pretty substantial development.

We’re sitting at four or 500,000 tonnes per annum, we wouldn't do that right now. We do it a bit later.

But we're doing it now. So, yes, you've got to have those discussions with your CFO and all the rest of it as to whether that should be sustaining or expansion.

And that's one of the reasons that when I talk about the PEA, I talk about not just the expansion CapEx, but the sustaining CapEx over that period as well.

All right. Next question, maybe just on the gold recovery circuit?

I know this is a bit dated, but in the PEA you think I believe you guys were targeting kind of 95% recoveries? What, that's all optimized?

Is that still a reasonable target? And then also, related to that with the copper?

Do you expect any improvement in the copper recovery and perhaps payability, as well?

Look, I think 95% is a reasonable target, for the operation going forward. We, one of the things that we've seen from the test work that we've done is, is increasing our residence time in the flotation will help us with, with recovery of some of this with some of these slow floating material.

And hence, when expanding to this 500,000 tonne per annum, we're actually pretty much doubling our refer capacity, even though it's only a 25% increase in throughput, and that's as a result of some of the tests that we did as part of the DFS. With the gravity circuit running, we expect to see our copper grades in the con go up.

And because right now, you will obviously, optimize your float for recovery of gold, not recovery of copper. Currently, 85%, 90% of our value, going forward, the float value will increase in terms of copper contribution.

And you've already pulled out some of your gold. So you're going to be pushing those, those copper grades up a bit.

And that in turn will have some impact on payability. So we do expect to get a little bit better payability with higher copper grades.

Overall, I think we still expect to see the same sort of coverage but a bit higher grade on the current [ph].

Okay, great. So that's what I was hoping to hear.

Perfect. Thank you.

Well thank you Operator. Thanks.

Thanks, everyone for attending this morning. And I can actually say this morning, because I'm also in, in North America.

Currently, I think it's the first time I've had a quarterly call where I'm actually in the same timeframe. I think it's been a very solid quarter for us.

We coming off a record quarter in Q4 to be able to sustain the production rates in terms of throughput from both the mining and the plant where we're really important in terms of throughput, we certainly anticipate we will see similar numbers this quarter in terms of I think our metal production and whatever else we think also this quarter will be similar to the last quarter. Second half of the year, I think we, we expect to see higher, increasing throughputs increasing mining rates impacted the equipment that we've got coming in increasing our labor, so labor recruitment as well.

And so we can continue to expect that production for the year we'll be back end loaded, and also the sheet [Ph] on some of the stocks. So this has set us up, we believe for a good year.

On the exploration front, now with three rigs in Kora, Judd South we're pretty excited by the potential there and obviously we will have will have results coming out on an on-going basis throughout the year. So there's a lot of things happening with DFS coming up as well, a lot of things happening for the company.

And we're looking really looking forward to the balance of 2022 as being a very exciting year for K92. So, again, thanks for your attendance this morning.

Look forward to catching up with many of you over the next few weeks or around PDAC. Stay well.

All the best to you and your families. And thank you.