K92 Mining Inc.

Thank you for standing by. This is the conference operator. Welcome to the K92 Mining fourth quarter and year end results conference call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to David Medeluk, Vice President, Business Development and Investor Relations. Please go ahead.

Thank you, Operator, and thanks, everyone, for attending K92 Mining's fourth 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 Blanchett, 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 two of the webcast presentation. Also, please 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.

Well, thanks, David, and welcome, everyone. I mean, the fourth quarter, in many ways, has been our most complete quarter at Canantu Goldmine to date. Record production, record mill throughput, record mine production. Just some of the highlights. And then highest recovery for both gold and copper to date. And once again, a positive reconciliation versus the resource model, a low all-in sustaining cost of just $672 per gold add. All of that in turn resulted in K92 achieving strongest financial position since inception and put the company in an extremely strong position to continue to self-fund both growth and exploration. When we look on the safety front, we're pleased to report there was zero lost time injuries in the fourth quarter. K92 continues to operate one of the best safety records in Australasia, and we really have a strong focus on occupational health and safety and continuing to improve our safety systems. On the ESG front, I'm pleased to provide an update on my recent trip to PNG, not without a few hiccups. I did get COVID while I was there and spent a bit longer there than I intended, but four weeks in the country. And really, we achieved a lot in that period. And I was fortunate to have a lot of interaction with government communities, et cetera, during that time. So during the trip, I met once again with the Prime Minister, the Honourable James Merapi, met with the Mining Minister, the Honourable Johnson Tukey, the Eastern Highlands Governor, Numu head of the Mineral Resources Authority, Terry Gary, among many others. The meetings were consistently positive, and many were featured in multiple publications in the local media in P&G, including the picture you have in front of you there, where this came from the business section of The National. And this was a release put out by the Prime Minister's office, where he highlighted K92 as a good corporate. citizen. During my visit as well, I was invited by the governor of the Eastern Highlands Province to the official opening of the COVID-19 isolation center at Garoka that was funded by K92. This is the largest isolation center in Papua New Guinea, and it's also designed to be multipurpose so that it can be converted into a sports center so that it's not just about being an isolation center, but it's a longer term asset for Garoka and for the Eastern Highlands Province. and very pleased that K92 to date has provided 2.5 million kina in COVID-19 funding to support various levels of government. The ESG-related visit included presenting scholarships at the University of Technology in Ley, the University of P&G in Port Moresby, as well as touring a variety of aid projects. And for further information on that, I direct you to our latest ESG report, which can be found on our website. And we really are very, very proud of positive impact that we continue to have in our community, in our province, and in Papua New Guinea. If we move on to operational performance, during the quarter, we produced a record 36,145 gold equivalent ounces, 20% above previous records. And that was really on the back of, as I mentioned, a record mill throughput of just under 100,000 tons processed at a head rate of 12.2. Recoveries in Q4 were the highest for the year in both gold and copper and among the highest today. Compared to Q4 2020, throughput increased 45%. And comparing 2020 to 2021, throughput increased 46%. In addition to that, when you look at the performance of the process plant, you'll see in the fourth quarter, 21 days actually exceeded 1,300 tons per day. And we achieved a record of 1,538 tons through in a single day. And when you look at what we need to do to achieve our 400,000 tonnes per annum, 1150 a day. So this is significantly need to do to achieve that. In terms of some of the key operational physicals, record mill throughput, as I mentioned, record total material moved, increasing 14% and 13% from the previous quarter, respectively, and development was comparable with the previous quarter. And despite all these multiple records achieved in the fourth quarter, COVID was still a factor for us, driven by the Delta variant, which resulted in short staffing and absenteeism. And in fact, COVID has been a factor for the entire year. Yet, as we've shown from the charts, we continue to push ahead with higher throughput quarter on quarter and commissioning of stage two. I'm also pleased to report that our control measures have continued to hold up and not the K92, we elected to maintain our quarantine system during the first quarter of 2022 as the Omicron wave came through. I believe we were the only mind to continue to do that, but that combined with one of the highest vaccination rates for our people in the resource sector in PNG really meant that the impact was significantly below many others in that first quarter. And so now with the Omicron wave appearing to recede. We are looking now at removing a lot of those restrictions. And in April, we expect to move back to a more normal operation, more normal roster. So with that, I'll hand over to Justin Blanchet, our Chief Financial Officer, to discuss the financial results. Thank you.

Thank you, John. And hello, everyone. During the fourth quarter, we had revenue of $53.9 million, a 12% increase from prior year. We sold 30,068 gold ounces at an average selling price of $1,707 compared to 28,112 ounces at an average realized selling price of $1,792 in the prior year. As of December 31st, 2021, there are 7,147 gold ounces in inventory, including both concentrate and dore, an increase of 2,678 gold ounces when compared to September 30th due to timing of sales. For the year, we had revenue of $154.3 million, which is comparable to 2020. We sold 92,560 gold ounces compared to 93,273 ounces in the prior year. During the year, we had an average realized selling price of $1,724 per gold ounce as compared to $1,692 per gold ounce in 2020. This is partially offset by K92 having a negative pricing adjustment in 2021, mainly attributable to the first quarter 2021. In the fourth quarter, cost of sales was $21.3 million compared to $23.9 million in the prior year. Excluding non-cash items was $15.9 million compared to $16.6 million, despite a significant increase in mining and processing tons compared to prior year. For the year, cost of sales was 83.3 million compared to 73.4 million in 2020. Excluding non-cash items was only 63.3 million compared to 57.2 million in the prior year, despite mining 35% and processing 46% more tons. In general, the higher costs on an annual basis were primarily due to increased operational activity, as illustrated by the significant increase in tons mined and processed, and when broken down on a per-ton basis, are lower than 2020, despite the company incurring additional costs related to the COVID-19 pandemic as outlined previously. Q4 2021 cash flows from operating activities before changes in working capital was $24.3 million compared to $18.9 million in the prior year. For the year, cash flow from operating activities before changes in working capital was $59.8 million compared to $76.5 million in the prior year. As of December 31, 2021, we had $71.3 million in cash and cash equivalents while spending $23 million in expansion capital for the year and having our strongest working capital balance to date of 88.5 million the company fully repaid the outstanding loan from trafigura earlier in the year leaving the company with no debt as john mentioned during the fourth quarter the canaan 2 gold operations produced 33 220 ounces of gold 1 million 48 100 pounds of copper and 28 218 ounces of silver or 36,145 ounces of gold equivalent. We sold 30,068 ounces of gold, 969,992 pounds of copper, and 25,871 ounces of silver, or 32,771 ounces gold equivalent. We incurred a cash cost of $456 and an all-in sustaining cost of $672 per ounce. which was significantly below our realized gold selling price of $1,707 per ounce. For the year, the Kanantu Gold Operations produced 95,055 ounces of gold, 3,375,528 pounds of copper, and 70,792 ounces of silver, or 104,196 ounces of gold equivalent. We sold 92,560 ounces of gold, 3,095,208 pounds of copper and 66,251 ounces of silver or 100,960 ounces gold equivalent. We incurred a cash cost of $614 and an all-in sustaining cost of $856 per ounce, which was significantly below our realized gold selling price of $1,724 per ounce. Our Q4 2021 cash cost per ounce decreased to $456 compared to $639 in the prior year. Our 2021 cash cost per ounce decreased to $614 compared to $651 in 2020. the decrease in cash costs was partially due to the successful ramp-up of the 400K expansion, allowing the company to achieve better economies of scale, but an offset by costs related to the COVID-19 pandemic. It's important to note that after commissioning the Stage 2 plant expansion in late third quarter, we have seen a significant compression in our total unit costs per ton 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.

Thanks, Justin. For the exploration growth section of the call, we begin with Canante's production growth strategy. In late third quarter, we achieved the run rate throughput of our Stage 2 expansion 400,000 tonnes per annum, and we're advancing two other expansions concurrently. Stage 2a, which will increase throughput a further 25% to 500,000 tonnes per annum, and Stage 3, which is now set to increase throughput to 1.2 million tonnes per annum through the construction of a separate standalone plant. So in early October, The Board of Directors approved what we call a Stage 2A expansion, and that, as we said, increases our throughput by about 25%. Now, the expansion is driven by the fact that we've achieved significantly above design throughput during our commissioning of Stage 2A. And so we've now looked to capitalize on this, identifying what our bottlenecks are and spending approximately two and a half million to remove those bottlenecks and allow us to achieve 500,000 tons per annum. On the process plant that involves an additional filter press, which is already installed and being commissioned, an additional TC 1000 crusher. So that's the second TC1000 crusher, which is currently on site. Deal work is on site. Some of the electrical and IT parts are still coming to site, but we're looking to install that in the next quarter. Third part, additional flotation capacity. That will only come in in late Q3 or potentially even Q4 due to supply issues, which I think the whole industry is seeing. But that won't prevent us being able to ramp up towards that 500,000 tons per annum. And we expect to achieve that in the fourth quarter. Capital cost of that only $2.5 million in the plant. When we look at the underground and the ramp-up underground, we're looking at really bringing forward some of the capital expenditure on a mobile plant from stage three so that we can achieve that earlier production as well as some of the capital development. And importantly, stage 2A gives us a meaningful boost in terms of our free cash flow generation and therefore further strengthens our balance sheet and our ability to self-fund growth. I'd also mention while we're talking about site during the quarter, while I was on site, I was there to see firsthand the commissioning of our gravity circuit, and that included the boring of some of our first doorway bars, which will not only improve the payability and we'll get 10 to 30% of our gold out from the gravity circuit and improve our recovery. Now we start looking at the stage three expansion, really pretty pleased to advise that multiple milestones were achieved during the period. Firstly, the twin incline can... And we achieved over a thousand meters or over a kilometer milestone by the end of February. Twin incline advance rate during Q4 was in line with budget. And for the second half of 2021 was actually 7.5% of our budget. I'd note that as that twin incline advances towards Cora, we plan to develop a number of drill cutties from the twin incline, which will be looking to drill and extend the resource in Cora at depth and also to the north at depth. Further, in relation to Stage 3, we also have completed our update of the high-grade CORA resource, as well as completing a maiden resource at JAD. And that will serve as the basis for the completion of our DFS, our Definitive Feasibility Study, as well as the updated preliminary economic assessment for Stage 3 and beyond. So firstly, the CORA resource, in terms of measured and indicated, exceeded our 2 million ounce target while maintaining high grades. And that's after the depletion of almost 200,000 ounces from the last resource, which was some two years ago. Importantly, when you compare historical with actual and look at the model depletion, this new resource still underestimates by about 7.5% the amount of gold that we get. When we look at the maiden resource at Judd, high-grade measured and indicated is basically very close to the existing development. Cut-off was the 31st of December, so very limited drilling. And so when we look at that, we've got 130,000 ounces, 11 gram per tonne measured and indicated 180,000 ounces at 5.6. This covers less than 20% of the area that CORA covers. And that really is reflective of the very limited amount of drilling. And we do intend As we go forward, we'll do a lot more drilling in Judd this year, with up to four of our six rigs underground actually focusing on Judd. And so when you look at the exploration during the quarter, we had drilling underway at Cora, Cora Scythe, Judd Scythe, and also at the Blue Lake Porphyry. At CORA, the latest drilling results continue to deliver high-grade intersections, solid thickness. To date, when you look at CORA, over 30% of K1 and 30% of K2 poles have recorded grades exceeding 10 grams per ton. The high-grade hit rate has really translated through into the resource and is something that we'll be able to leverage in the upcoming economic studies. Important to highlight, in late 2021, we completed our major infill drilling program at Cora. And now, for the first time in 18 months, the majority of the drilling that we're doing underground will be focused on resource growth. In addition, the primary focus in Cora South and Judd South, also resource growth. And from this long section, when we look at Cora, Cora South, three key areas, exploration focus, Core aside from surface, as you can see from the long section, there's been absolutely no drilling done previously along an approximately one kilometre strike length south of the mining lease, despite the fact it's got promising outcrop, it's also got artisanal workings. We've only drilled one hole in the quarter that went through Cora, but what we have seen is potentially the most significant exploration finding since the discovery hole in Cora North from underground in 2017. And I'll discuss that further when we look at the cost section. Cora South from underground. You'll see we've got that Cora Judd South drill drive on the 1200 level. Now that's currently being equipped to allow us to drill into Cora South, so that is south of the mining lease underground. And we'll be able to extend our resource, we believe, around 150 to 200 metres around that 1200 level, 200 metres plus vertically above and below that level. In addition, we'll also be able to drill Judd from that. So it's not just Cora, we'll be able to bring both Cora and Judd from that development trial. And then when we look at the twin incline coming in, we'll be able to start drilling what we call Cora deep and that northern extension of Cora. And we're looking at the second half of the year to be able to do that. When we consider Judd and the Judd South vein system, the exploration program follows a similar plan to the previous slide with the distinction that when you look at exploration of Judd, we're about three years behind where we are at Cora. So we've still got all of that area within the mining lease that needs to be drilled out and hence the focus from the underground drilling without the four of our six rigs will be drilling Judd this year and then probably well into next year. And remember that we only made our high grade discovery in Judd underground Q4 2020. Cora high grade May 2017. So we're three years behind where we were in terms of Cora. So Judd will focus both underground and will also focus in what we call Judd South moving to the south. So if we look at the cross sections of both Cora South and Judge South, you'll see that both holes intersected the Judge Vane system, 75 metres and 150 metres, approximately a long strike on the last holes in the mining list. Only one of the holes actually intersected the core, and that's because on the second hole, we lost the hole just after we'd gone through Judd. But let's look first of all at the Judd vein system. Firstly, we've encountered high-grade veins, not just J1, but also J2. So two-vein system, but recall the maiden Judd resource is only on one vein system. Extremely important in looking at this is the dilatant zone. that we identified 150 meters of long strike from the previous historical drilling and essentially we're getting discrete high-grade veins and good high-grade veins 2.9 meters 8.5 15.25 meters at 15.87 and we're also getting a dilatant zone and in that first hole 66 and a half meters at over five grams per ton the longest intersection that we've ever recorded at canada solid geotech as well This whole dilatant zone hangs together really well, and it's a potential order of magnitude bigger than that that we've seen to date. If we look at chorosite, again, we've encountered high-grade above-average intersections of both K1 and K2. And in addition, we've also encountered a third K3 vein, which returned five meters, almost eight grams per ton, and the whole bottom in that K3 mineralization. And as a reminder, K3 is not in the choral resource. Secondly, is Kora veins, high-grade copper. Up to 80% of the value in the gold equivalent is actually in copper. And two of the veins recorded approximately a meter to two meters of 20% copper in the core. Mostly Chalkopara, but there was some Boronite. And then third, as we've seen in Judd, a dilatant zone. In this case, 35.9 meters at almost six grams per ton. The intersection was the widest that we've ever drilled for Kora. And as I think I noted, In Judd, I mean, these dilatant zones have significant potential in terms of the amount of endowment of metal. As a bonus in that hole, we found a previously unknown vein located approximately 75 meters to the east of Judd, 3.45 meters at 10 grams per ton. It says something for the endowment that we have, that the intersection of a previously unknown vein of three and a half meters at 10 grams per ton is almost in a side. We've had one rig drilling up there. We now have two drill rigs on Kora's side. And in the next quarter, we'll have three rigs drilling up there. We are already the largest explorer in the country in PNG, and I think our budget is around 15 million US dollars this year. But with the success that we've had in the first quarter of this year, we're certainly reviewing that budget. Looking at exploration at Cora Seif and Judd Seif, we've also advanced it with a surface sampling program, which we're completing every 100 meters apart. And that is progressing towards the interpreted A1 porphyry. And this whole program, the drilling program, the surface sampling program, will provide important vectors for drilling towards that porphyry and obviously enhance our understanding of the system as we step out progressively to the Seif. I just flagged some of the regional exploration activity. We recently completed an advanced mobile MT deep penetrating airborne geophysics program in November, December. The results are, to say the least, promising. It's the first major geophysics, airborne geophysics program completed in PNG for something like 15 years, biggest for over 20 years, and the most advanced that's yet been formed. And we're still processing all of the data, but it's delineated high conductivity zones that extend from Cora and Judd along Cora Scythe, as you can see there, Cora Scythe, Judd Scythe, towards that A1 porphyry, and then continuing to the southeast for about five kilometers. And that continuation is something that previously hasn't been recognized. We've also got a zone which is going off to the northwest. And associated with that, we've got the Maniapian Adacompa historical resources. The results from this program have also demonstrated the highly prospective nature of this whole belt and the potential for porphyries in the belt as well. And they correlate well with known targets such as Blue Lake and A1. Phase two drilling program, Blue Lake, almost completed, and we'll provide an update in Q2 on that program once we've received all the results. As I mentioned, the geophysics has shown a very strong response in A1, even stronger than Blue Lake, making it a very high priority target for the near term. And we intend commencing surface sampling program on that this year as well. So with that operator, I think we'd like to commence the Q&A. Thank you very much.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. The first question is from Michelle Gray from Kansas Capitol. Please go ahead.

Hey John, it's yeah, it's actually Michael Gray from a Gentis. Just a couple questions. First of all, the strong gold recoveries exceeded budget. Was that solely from the gravity circuit being implemented?

Your lines are live. You can go ahead.

Yeah, Michael Gray from Magentis here.

Yeah, we could hear you, Michael. Just David or John or Justin.

Yes, Michel, really nice to meet you. I don't think we've spoken before. You remind me of an analyst I once knew at Macquarie. In terms of the gold recovery, It's actually a combination of things. We've been doing quite a lot of metallurgical test work as part of the definitive feasibility study, and we saw that as an opportunity to look at optimization of the flow circuit in terms of different reagent regimes and what have you. So in part, it's been driven by some modifications to the regime. The gravity is, we think, helping a bit. But the gravity wasn't fully operational during the fourth quarter. It was being commissioned, but it wasn't fully operational. And it really won't be fully operational until the next quarter. So it probably had some impact, but not an enormous impact. I think it's more about optimizations that we've been able to achieve by looking at the test work that we did. And that obviously will be something that feeds into the design of the new plant.

Okay. No, very good. I appreciate that color. And then just on the porphyry exploration, An update on Blue Lake. I think at the very end you may have said that was coming in Q2, but can you give us a bit of color on timelines for results at Blue Lake and what we may see as far as roadmap for results?

Well, we're still waiting for the results. We literally just finished drilling our last hole in the current program. And so we are now waiting the results from that. So realistically, I doubt if we'll get the results until probably, what do you know, May, April. probably until May. And there's a compilation of all that. Chris Muller is actually busy putting that together right now. But I would say second half of the second quarter for a more comprehensive report to come out.

Okay. Thanks. The final question, John, is on your Four weeks in country and meetings with the prime minister and various ministers. Was that a routine series of meetings or were there certain objectives and things you're working towards that were really key to K92?

Well, actually, the meeting with the PM was at his request. And I think that's a recognition of the profile of K92 in the country. The good news is good news, especially when you're going into an election. And so you like to be associated with success. So I think there was an element of that. But also, um i think the the pm has been has been reaching out to quite a number of significant players in the resource field and really um i think there's a recognition of the importance especially coming out of covet of the resource sector and the drive that that is going to have on the economy and that's only information that's come out from the world bank and whatever else on that And so there was an element from the PM of reaching out I think the week before I was there, we met with Mark Bristol, for instance. From our perspective, it was pretty much about updating on the plans, what we have achieved. Obviously, an important part of what we've been doing is paying corporate tax. And I think last year, second highest payer of corporate tax in the mining sector, which gets us a lot of kudos in country, especially from the PM. And then one of the questions was, okay, this is a great story, what can we do for you? And so from our perspective, We highlighted that we put in an application for renewal of our mining license. It's ahead of schedule, but we are planning on spending in excess of a billion kina over the next three years. And so we'd like that one renewed as quickly as possible. And the PM turned to the mining minister and the head of the MRA and said, well, you've heard what he needs. We need to get it done. um so that was extremely positive from that side of things um and uh the head of mra was flagging with both the mining minister and the pm that were the biggest explorer in the country and um so there was an appreciation that you can explore you can develop and you can pay tax and you can do it all in the same year i got a round of applause for that by the way michael believe it or not first time i've ever had from politicians

That's good insight. Good color. Great year. Thanks, John. Appreciate this.

Thanks, Michael.

The next question is from Andrew Mikachuk of BMO Capital Markets. Please go ahead.

Just a quick couple of questions. Can you guys give us any sense on seasonality on costs? Are there any substantial planned maintenance periods that would you know kind of impact a full quarters reporting or any significant variations in grade that would also have an impact on you know production and more importantly costs on an all-in-sustaining cost basis so that we can accurately forecast forward the trend after a very strong q4 uh yeah thanks thanks andrew um

Look, I think 2022, as we've actually seen for the last couple of years, we do expect 2022 to be back-end loaded to a certain extent. A, because obviously we commissioned 2A towards the end of the year. We've already got a lot of the equipment on site, some of it installed, such as the filter press, the crushers on site. Deliveries are a bit slower than we'd like, and we've certainly got a long lead time on the additional flotation capacity that we're putting in. That's probably the longest lead item that we've had, and that certainly is going to push us out into the third quarter, perhaps even the fourth quarter, to get all the equipment. We're seeing the same thing that other people are seeing, I guess, in that context. That doesn't stop us ramping up production, doesn't stop us pushing more tons through, and we've obviously been able to do that to a certain extent. But for instance, the additional flotation capacity, and we're increasing flotation capacity by more than 50%, in fact almost 100% on the rougher side, even though we're only increasing throughput by about 25%, that's also coming out of metallurgical tests where we've shown we do have some slow-floating species that should benefit from a longer retention time. So higher tonnage, especially I think in the fourth quarter throughput. In terms of grades, certainly I expect the first and the second quarter to be lower grade overall than the average for the year. Tonnage wise, you know, we expect both quarters to be to be close to our sort of the first two quarters, three quarters to be roughly 100,000 tons, which are pretty much on par of the design capacity that we currently have, the one proviso being any impact from COVID. And certainly we had a bit of impact from COVID earlier in this first quarter. But now it seems that COVID has very much abated within PNG. The Omicron variant seems to have gone through and cases have dropped dramatically over the last couple of weeks, as I understand it. We've got no cases on site. We've got no cases that have presented to go into quarantine prior to coming to site. And we'll actually be looking to step down our to step down our quarantine in the next month. So we're hopeful that we're not going to see any real significant impacts from COVID in terms of the workforce and what have you. I think we're all seeing impact in the supply chain, and we're seeing it in shipping a couple of bits of mobile plant that should have been in at the beginning of the quarter. And, uh, you know, they're only coming into coming into the country now. So so we are seeing some hiccups here as well. And we anticipate that we'll see that for the balance of the year. We are expecting to have supply chain issues. And we've been ramping up the amount of material that we're, stores that we're holding on site, which you'd see from the balance sheet and what have you, to deal with that. But to come back to your first question, expected to be back end loaded, higher tonnage second half of the year and the first half of the year, slightly higher grades in the second half and the first half of the year.

Okay, just a quick second question. The new ramp is, I guess, by 1,000 meters and roughly two kilometers to go. What kind of advance rates should we be expecting or, you know, either to the end of this year or per quarter or month? Just something so we have a rule of thumb to kind of know what to expect.

Generally, our target is 150 to 200 meters per month.

Sorry, to be clear, that's for both inclines, or is that combined, so it's half of that on a net? Combined.

Yeah.

Yep. Okay, so 75 to 100 meters per month out of the 1.9 that's left.

Yeah, is that accurate? 1.9, remember, takes us to the very end of the mining lease. That's not where we need to be, obviously, put in our first major production ramp.

OK, and then at what point can you start using this as a drill platform?

It'll be second half of the year where we'll start looking at a core down plunge to the north and it will be into early next year before we get basically to be under our current core resource area.

Thank you. I'm sure there's other people want to ask questions. Congrats on a strong finish to the year. And I'm sure we're all looking forward to the exploration results from all those many different targets.

Thanks, Hunter.

The next question is from Michael Fairbairn from Canaccord. Please go ahead.

Great. Thank you. And thanks very much for taking my question and congrats on a strong quarter. I've got a question on costs here. we saw a pretty dramatic decrease in mining and milling costs in the back half of the year, particularly as the Phase 2 expansion came online. So I'm just wondering, was the decline in mining and milling costs, you know, if we look at it on a per ton basis, it's the lowest it's been in some time now. Is that decline really due to the economies of scale that you've been able to achieve now that you have Phase 2 online? Or have you done anything else that's really driving that cost reduction?

OK.

So I guess economies of scale are certainly part of the benefit, which we've always sort of said would be the case. And I think we've projected that this year our average costs will be above what they were in the fourth quarter, but generally speaking should be below the average for 2021. Now, when you look at 2020 to 2021, there is some obviously fairly significant increases in ore processed. I mean, you've basically increased by about 50%. Labour-wise, you're not actually adding many more people to be able to get that 50% increase in throughput. Mining, yes, you've obviously expanded to people underground, but not by the margin of what you've mined, for instance. Same with power, your power costs, obviously. Not quite fixed costs, but they're certainly not variable costs as some people tend to model them as so. It's clearly about sharing the fixed costs over more tons. we would argue, if anything, we're probably going to have higher operating costs than we would otherwise have simply because we are building up a team of people. We are carrying out a lot of work, which is really setting up for the next phase of expansion. Some of that cost you take as a an expansion cost, but some of it you take a sustaining cost and some of it, quite frankly, you take as an operating cost because it's very difficult to quantify what you should put into sustaining capital, what you should put into a cash cost if you, for instance, bring some additional um people on expats on provide additional technical support and the primary focus is in the operation but they're also doing doing support work for your expansion etc etc so um really driven certainly for the year and for the quarter by an increase in tons mined, in tons processed, et cetera, et cetera. Not a focus on driving costs per se because we're still very much in an expansion phase. And you'll see that, I think, continue this year. I would make the point that last year our estimate was that COVID cost us around $60 per ounce. And that is a cash cost. When you look at rock health and safety, environmental costs from 2020 to 2021, they doubled from about $11 to $22 a ton, and that is reflective of Just some of the costs that we incur this direct costs related to COVID. So we see some of those costs coming out in 2022. So we, as I mentioned, we're looking at dropping our quarantine in the next quarter. That alone is fairly significant on our labor costs. When you look at expats, all of last year, expats going back into Australia, that was a two-week quarantine period. That's two weeks that you're paying people to sit and be in quarantine, and you're actually paying for them to be in quarantine. You're paying the government a fee for them being in there as well. So unusually, we actually believe we'll see labor costs come down this year, but obviously there are other... escalations that we and the rest of the industry are seeing. Nevertheless, we'll be increasing our throughput, increasing our mine tons, and we do expect that to continue to drive down our unit costs.

That's very helpful. Thank you.

And just one more from myself, if I can. around the exploration spend in 2022. I think in the press release you had some language about possibly increasing the exploration budget in 2022. Just wondering if you have any soft guidance around the magnitude of where this might land, and if you do go ahead to increase the exploration budget, just what are you going to be targeting? Is it going to be more accelerating the target that you've already laid out, or is there anything additional that you're considering going after?

I think if we were accelerating the budget, it would be about putting more rigs on the ground in the main part. That's where we incur most of our cost is putting physical rigs on the ground. And if we're putting physical rigs on the ground, that's really focused right now around Cora and Judd surface. I think underground, we're pretty much at what we can do. We've got six rigs underground. plus a mobile rig for doing short jobs, but effectively six rigs underground, that we wouldn't be looking at putting any more rigs underground. We've currently got two rigs drilling surface, we'll have a third rig coming up, and we may bring in a fourth rig soon. We're actually looking at sourcing it right now. But that's one I'll have to go cap and hand to the board on. But I'm sure if I can deliver a few more results like the first couple we've had in Cora Judd South, I'm sure I'll have a receptive board.

Fantastic. That's really helpful. Thank you. And congrats on a good quarter. Thanks, Mike.

The next question is from Don DeMarco from National Bank Financial. Please go ahead.

Thank you, operator. Good morning, John. How should we think about 2022 guidance, the midpoints 930 for AISC in light of the strong Q4 with AISC at 672?

ah yeah um look we had a yeah we had a lot of discussion on the whole uh guidance for 2022 um i guess in many ways we weren't happy to give guidance that was that was quite wide 115 to 140 000 answers is is pretty It is quite a wide guidance and we recognize that. And a result of doing that, of course, when you put together your budget and look at your fixed costs and all the rest of it is that you end up with a relatively wide cash cost and all in sustaining cost. So 2022, we've allowed a substantial amount, and you'll obviously see that from the difference between the cash cost and the all-in sustaining cost. There's a lot of sustaining capital going in there. Some of that is effectively deferred from 2021, where, for instance, we should have had some mobile gear that arrived late in the fourth quarter and now arrives in the first quarter this year. So a few things like that tend to push up your all-in sustaining cost. Yeah, look, if we don't see the impacts of COVID, we would certainly see ourselves being in the top half of our guidance in terms of throughput and the bottom half of our guidance in terms of cash and all in sustaining cost. So I guess no surprise there.

Okay. So we're not necessarily expecting the momentum from Q4 to carry into Q1 per se. But we could see all in sustaining costs of 672 for Q4. You could see a reversion up toward the guidance range, albeit maybe the lower half of the guidance range in Q1. But still, that's still a $200 increase quarter over quarter in AISC.

Yeah. I mean, I can tell you I've got two major bits of MOLAR plant that have just arrived on site. They were both due in the fourth quarter. I've now got them on site. So cost of those alone will certainly add a significant amount to your all-in sustaining costs, probably $100 on their own.

Okay. So we'll look at Q4 as a very strong positive quarter, but maybe a little bit of an anomaly at this stage, but still hope for... uh that a trend to somewhat continue in 2022 but it will stick with guidance um the next question how much stage three capex should we model in 2022 now there's an interesting question um

Look, we're still getting our heads around the numbers and around what we need to do in terms of putting in orders for long lead items. In fact, I had a meeting today with our main client. uh, contracting consulting group, um, uh, looking at exactly those issues. And that's something that they're expediting as part of completion of the feasibility study. Um, so we're, I can't give you an exact figure right now, because first off, I actually haven't put anything up to the board because we haven't seen the final numbers yet. We've given some sort of indications to the board about expectations. Um, but I, I would say, um, we've, we've allowed, for instance, for a raise board in the fourth quarter. So, you know, the problem you get with that on the course is, is that expansion capital or is it sustaining capital? Would we put it in in the fourth quarter if we weren't going for the expansion? The answer would probably be no. Will we have to put it in at some point if we don't do the expansion and stick to 500,000 tons per annum? Absolutely. So, you know, It's capital that's already allowed and already budgeted for this year. And we have a fairly substantial capital budget for 2022. I think in rough terms. Okay. Okay, numbers were, but we've allowed for significant amounts of expansion capital. We've also got a lot of sustaining capital, and there is a, as I say, there's an argument you can make as to whether something is sustaining or it is expansion capital, and that's a, That's something that we're dealing with all the way through. And it's one of the reasons that, in fact, we really talk about total expenditure over the over the three year period where you're actually busy with with all of the expansion. We've got, for instance, we've got two and a half, $3 million on TSF, lifting of the TSF this year. And again, that to us would be sustaining capital, but you may argue that in fact it is expansion capital because you don't need to do quite that much. lifting of the damage as we're proposing to do. But I think overall, we've got something like 60 million of capital allowed this year in sustaining and expansion.

Okay. All right, John. Well, we'll keep an eye out for the feasibility study in Q2. That's all for me. Thanks so much. Good luck moving forward.

Thanks for that.

The next question is from Sean Gosun of CECL. Please go ahead.

Hey, John. Congrats for Q4. Just a question on the gravity circuit and when is it coming online and how are you seeing the impact on pay abilities?

Gravity circuit. We have to modify our export license to be able to export DORE. Right now, our export license specifies concentrate. So we have to modify that. And we're just waiting for that to come back to be able to operate basically the gravity circuit full time. So it's not operating full time at this point in time because we don't want to build up too much DORE on site. um we anticipate that we'll get between 10 and 30 percent recovery of gold into our dory and it will it will vary um varies on whether we're on k1 or k2 or judd for that matter um and also obviously the you know whether you're in the higher grade areas or low grade areas um in terms of payability uh

producing dore is worth about four percentage points improvement in our gold payability okay uh thanks uh john uh for the color uh my second question is uh regarding the timing of the gold sales uh you mentioned it and you're facing some supply chain or shipment issues can please provide uh okay

Sorry, I didn't catch the first part of that question.

The timing of the gold sales, and you mentioned something about the supply chain and shipment issues that will likely to continue in 2022.

The timing of what? Sorry, I didn't catch the timing of?

The gold sales. The what?

The gold, gold. Gold sales? Yes.

Oh, sorry. Okay. Gold sales. Sorry. I'm, I'm, I'm thinking supply and not sales. That's why I can get it. Um, okay. Uh, look in terms of, uh, export of our concentrate. Um, we, we have had some, some delays in, uh, shipping. Um. have not been major, but we have had some delays in the shipping and we've had cases where up to three batches have gone in a single ship. Now, the scenario that we have and the contract that we have with Trafigura, while I can't go into obviously all the commercial details, An important part of that is that we actually get paid 85 to 90% of what we're going to get paid when we deliver the concentrate to the port of Ley. It actually goes into a sort of bonded warehouse type thing. So the impact of a delay in shipping is not particularly serious for us because it's really about we just put it in a container. We truck that container down to lay. It gets weighed and lay. We've sampled it under supervision as it's being filled. It has a number of seals on it. It gets assayed at an independent laboratory. It gets weighed separately. We weigh it, but it's also weighed in lay. And based on that certified weight, based on the certified assays, we get a provisional payment of about 90% of what we're going to get paid. The balance is paid on outturn to the smelter. So therefore, if there is any significant delay in shipping, it's not particularly impactful for us. And today, we haven't really seen very significant impacts in gold sales. We've seen some, but not particularly concerning. We've seen more impact on deliveries than we have on being able to ship out our concentrates.

Thanks, John, and congrats for the great quarter again. Look forward for 2022.

Thanks very much.

The next question is from Chris Thompson from PI Financial. Please go ahead.

Hey, John. Thanks for taking my question. A lot of them have been asked. Congratulations on a great quarter, by the way. And I apologize. I was probably a little late on the call. but just really, really interested in exploration approach by way of testing the A1 porphyry there. Can you provide any color and plans for this year?

Okay, so in terms of... A1 Porphyry, the plan is at this point in time that we will be on the ground doing surface sampling along the whole strike of Kora South, Judd South. In fact, we're doing it right now. And that expands to cover all of A1. And then it'll actually carry on that surface sampling program, soil sampling, crop sampling, et cetera, et cetera, will then continue on to the south with that high conductivity zone to the south. So that'll be going on for probably the balance of this year. In terms of drilling, Uh, the, as I said, I think I said, we've got, uh, we've now got two, two weeks up on core judge side, and we've got a number of fence lines planned, which are every 75 to a hundred meters. Um, we've got a third rig to, to come up there in the next quarter. And at this point in time, we're trying to source a fourth rig as well. And whether that would go up there, whether that would go to one of the other projects is still something that we're looking at. But potentially, and again, we're looking at the surface sampling that we've got going. the balance of the data that we've still got to really properly evaluate from the aerial geophysics, and of course the results that we're getting from the drilling, all of that going in to give us better vectors for where we should actually be looking at and how we should be looking to drill the A1 porphyry. And obviously, it's an interpreted porphyry at this point in time, because no one's actually drilled it. Yes, there's a litho cap there, so I think it's a fairly solid interpretation to say the least, but we haven't actually drilled it. It's certainly the intent at this point in time that we'll get to drilling it before the end of the year, but I'll make the provisional that our focus is to drill sequential fence lines along Kora South and lead into the A1 headwater, rather than jump out and start drilling the A1 headwater.

Great, John. Thanks for that. I think I caught on Michelle's question earlier on relating to Blue Lake there. What's the timeline for the next batch of results?

We should have a fairly comprehensive report out second half of the next quarter, which will have all the results from all the drilling programs we've done. Some interrupts, obviously, from the aerial geophysics, et cetera, et cetera. So it will be fairly comprehensive. And the plan is, I think, Chris Muller, VP Exploration, will be coming across around PDAC. So we'll look to get around to the likes of yourselves and others. facilitate some sessions on specifically focusing on the exploration side of things.

That would be fantastic, John. Great. Congrats. Thank you very much.

Thanks, Chris.

As a reminder, if you have a question, please press star then 1. This concludes today's question and answer session. I would like to turn the conference back over to John Lewins for any closing remarks.

Thanks, operator. Look, I think first off, we're obviously pleased that we were able to finish the year on a strong note. It certainly has been a very impactful quarter. probably after the first quarter 2018 when we actually declared commercial production this to me has been a most important uh quarter in in in our short history when you look at uh at the boxes we take in terms of commissioning uh stage two getting uh getting our stage two throughput and as a result having a record tons processed records tons mined mineralized material remembering of course we have no ore yet give us time total total material movement record record in terms of answers produced and driving down the costs, obviously, as a result of all of those outcomes. Then also the aerial geophysics program, getting that completed, albeit almost two years later than we wanted it. But again, something called COVID came in. And then starting the drilling in Kora South and Judd South and seeing some quite outstanding results there. And speaking of Judd, first mind out of Judd as well. So quite an incredible quarter for us in many ways and a lot more things happening on site as well that don't show up in those numbers, that don't show up in the presentation even. In terms of setting up so we're doing the lift of the of the tailings down in new offices at the 800 portal starting the new workshop starting to throw the. pad for the new workshop at the 800 portal. Further expansions on the camp. The list just goes on and all of that's been done in the middle of COVID when we've got almost no outside, no foreign consultants, contractors on site as well. It's all being done by our own people and by local contractors. So I think it's a testament to our people to the operations group and the project group that we have on site that we've We've achieved what we achieved in the quarter, and I'd just like to record the appreciation of our board and of our execs for our operational people and our contractors on site. for what they achieved in the quarter. It's quite outstanding and it sets us up very, very well for 2022 when we've got so much still going on. So with that, I'd just like to thank everyone for attending this morning or this evening, depending on where you are in the world, evening for me. Thanks for the questions and the interest. There's nothing worse than sitting here at the end of it and nobody's got any questions. You either think, hey, my presentation was incredibly good and therefore I've answered everyone's question, or B, there's nobody out there and I can't see them. Thank you all for your attendance and for the good wishes. And have a great day. And we look forward to our next engagement. Thank you very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.