K92 Mining Inc.

Thank you for standing by. This is the conference operator. Welcome to the 2022 fourth quarter and annual financial results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll 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 Medlik, president. Please go ahead.

Thank you, operator. Thanks, everyone, for attending K92 Mining's fourth quarter and 2022 annual results conference call. We hope you and your families are doing well. In addition to myself, we have on the line John Lewis, 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 to the webcast presentation. Also, please bear in mind that all dollar amounts mentioned in the conference call are United States dollars unless otherwise noted. Now, I'll turn it over to John to provide you with an overview.

Well, thank you, David, and welcome, everyone. I think before we start the formal review of results, I need to start by recording on behalf of everyone at K92 that it is with profound sadness that we record the recent passing of our chairman and friend, Tukey Angus. Tukey was a deeply respected business advisor to the mining industry and an admired leader and a mentor to many. Within K92, he was a big part of our success. He'd been chairman since the inception of the company and its acquisition of the K92 project in 2015. He was an extraordinary director and chairman, very much a team player, bringing an incredible wealth of experience and of course that sense of humour and charm. Tuki also had a strong passion for philanthropy and helping others which was evident in so many things that he did in all of these actions. His contributions to the mining industry were far reaching. He'll be missed, long remembered by us all and we extend our condolences to his family. So moving on. During the fourth quarter, Kenantu took yet again another step forward, achieving multiple records, including record ore tons processed, record tons mined, record ore tons mined, record development advance, and our second highest quarterly production ever, and strong all-in sustaining and cash costs. For 2022, the company met its production guidance and beat its cost guidance for both cash cost and all-in sustaining cost. In the fourth quarter, we delivered multiple growth catalysts, including the 10-year extension of the mining lease, the approval of stage three and stage four expansion development by K92's board of directors, and some very exciting drill results within the Cora, CoraScythe and JuddScythe paint systems, which I'll discuss later in the presentation. On the safety front, we recorded no lost time injuries for the fourth quarter and we're proud to continue to operate with one of the best safety records in the Australasia region with a strong focus on occupational health and safety and continuously improving our safety systems. On the ESG front, I'm pleased to announce that K92 was the recipient of the award for outstanding women's contribution in the resource sector at the Papua New Guinea Mining and Petroleum Investment Conference in Sydney in early December. The award was in recognition of our adult literacy program. We started in 2019 with just age students and have now graduated over 200, 90% of those being women. The support for this program has been simply outstanding. and we're expanding even further this year. Beyond our literacy program, we provide business and training, skill training, and are really pleased to see how new businesses in our community are being created as a result of this. And while in Papua New Guinea in February, with our VP of Government Community Affairs, Philip Samar, and local director, Daisy Taylor, we awarded the scholarships for the 2023 Mining Tertiary Program. Now, each recipient was presented with a medal honouring senior Papua New Guinean leaders within K92. This program annually awards students in their third year of study in the fields of mining, metallurgy and geology. In 2022, the program was extended to include women in mining. The right image shows this year's recipient, Vanessa Tan. The scholarships cover all tuition, accommodation and other costs for the final year, as well as a living allowance. In addition, all recipients will be provided with entry into a two year graduate training program following the hopefully successful completion of their studies. I'd like to offer my congratulations to this year's recipients. The image on the left is from our meeting with government officials while we were in Garoka, which included the governor of the Eastern Islands Province, as well as a new local member. And while there, K92 pledged 50,000 kina to support funding efforts to rebuild a part of the student accommodation at the Garoka campus, which was damaged as a result of the earthquake in September 2022. That earthquake damage has been disruptive for many students who were previously based on the campus and may have to travel daily to university for studies. So this was something that we felt was really important that we should contribute towards. Also on the ESG front, I'm pleased to report the construction of the dedicated 22kV power line to site has been completed. A power line is expected to significantly increase the reliability of clean hydroelectric power distribution to site. Reducing utilization of the backup diesel gensets, which are from reducing our operating costs, is important in reducing our greenhouse gas emissions. And at K92, we continue to look for opportunities to make a difference and mitigate climate change. Moving on to our operational performance during the quarter, we produced 35,538 ounces gold equivalent with 121,686 tons processed at a head rate of 9.98 gram per ton gold equivalent. This compares with Q4 2021, a 22% increase in ore process. For the year, production was 122,806 ounces gold equivalent, meeting our production guidance range of 115 to 140,000 ounces gold equivalent for 2022. Cash costs at $538 per ounce were better than the guidance range of $560 to $640, and all-in sustaining costs at $864 an ounce were also better than our guidance range of $890 to $970 an ounce. In terms of our key operational physicals, Kenantu delivered record or processed, records or mined, and records development meters. As noted in previous conference calls, increasing our development rates continued to remain a focus for the quarter. and so that we could catch up on our development that has been impacted by COVID-19. I'm pleased for the development advance rates that we achieved in the last quarter and that we now continue to see in 2023 year to date. In terms of our outlook for 2023 and performance year to date, I think it's important to highlight that the operation has experienced unexpected operational challenges at the process plant and also at the mine. In late February, we press released that the process plant had experienced eight days of combined downtime in February due to a milk trunnion bearing failure and also an electrical fire in the cable tray. I'm pleased to report that after completing the maintenance and repairs, the process plant has performed very strongly, sequentially setting daily records, as you can see in the chart there, with the latest record being 1,815 tons processed on March 11th. To put that into perspective, Stage 2A expansion process plant design throughput is 1,370 tons per day. Also important to note, the process plant has not yet had the benefit of the stage 2a rotation expansion, the additional two rougher cells that we put in that basically double our rougher capacity, and that's planned to commission in the second quarter. At the underground mine in the second half of the quarter, we also encountered more challenging ground conditions than expected, which slowed down our mining rate and limited access to some of our higher grade areas. While this is generally not a serious problem for the operation because we can source additional ore tons from other mining areas, However, due to development rates being below budget for several quarters during COVID-19, as shown previously on the operating physicals, we don't have sufficient backup areas. So we've had to supplement mill feed from some of our lower rate stockpiles. As a result, we do expect the first quarter to be normally below budget, second quarter potentially moderately low budget. 2023 production will still however be with the guidance strengths that we've provided. I think it's important to highlight there have been several positive developments underway to improve our operating flexibility in the near term. Firstly, recent development rates as we've shown are performing well with records set in Q4 and strong development advance year to date. Development is obviously a leading indicator for operational flexibility and we expect to start benefiting from the strong advanced rates near term with two new sub-levels currently being established. Secondly, multiple pieces of new equipment have recently arrived and more is on the way. New equipment is both replacing the less productive equipment and also increasing the size of our fleet. Thirdly, during the second half of the year, we'll be accessing the ore body at depth from the twin incline, opening up an entirely new mining front, which is serviced by a large twin incline. All of these points, in addition to the process plant that is performing strongly, position the company for a strong second half of 2023. And of course, our budget showed that we'd be mining higher grades in the second half of the year as well. So we were expecting a significantly higher second half of the year. I'll now turn it over to our Chief Financial Officer, Justin Blanchet, to discuss the financial results for the third quarter.

Thank you, John. And hello, everyone. During the fourth quarter, we had revenue of $62 million, a 15% increase from prior year. We sold 35,212 gold ounces at an average realized selling price of $1,652 compared to 30,068 ounces at an average realized selling price of $1,707 in the prior year. As of December 31st, 2022, there was 3,612 gold ounces in inventory, including both Concentrate and Dore, a decrease of 3,183 gold ounces when compared to September 30th due to timing of sales. During the year, we had revenue of 188.2 million, a 22% increase from the prior year. we sold 110,654 gold ounces at an average realized selling price of $1,711 compared to 92,560 ounces at an average realized selling price of $1,724 in the prior year. Q4 2022 cost of sales was $29.8 million compared to $21.3 million in the prior year, or $23.2 million compared to $15.9 million when you exclude non-cash items. Cost of sales increased primarily as a result of costs associated with the operation of the Stage 2 expansion. As a result, operational activity has increased from 99,713 For the year, cost of sales was $96.3 million compared to $83.3 million in the prior year, or $74.7 million compared to $63.3 million, including non-cash items, an increase of 18%. The successful ramp-up of the Stage 2 expansion has allowed the company to achieve better economies of scale and lower unit costs, with total ore processed increasing 33% from 336,221 tonnes in 2021 to to 448,087 tons in 2022. Q4 2022 cash flow from operating activities before changes in working capital was 26.6 million compared to 24.3 million in the prior year. For the year, cash flow from operating activities before changes in working capital was 72.5 million compared to 59.8 million in 2021. as of december 31st 2022 we had 109.9 million in cash and cash equivalents while spending 42.4 million in expansion capital for the year and having our strongest working capital balance to date of 125.2 million the company also has no debt on the balance sheet As John mentioned, during the fourth quarter, the Konantu Gold operations produced 31,204 ounces of gold, 1,827,085 pounds of copper, and 40,517 ounces of silver, or 35,538 ounces of gold equivalent. We sold 35,212 gold ounces. 1,923,116 pounds of copper, and 44,828 ounces of silver. We incurred a cash cost of $512 and an all-in sustaining cost of $870 per gold ounce, which is significantly below our realized selling price of $1,652 per ounce. During the year, the Kanantu Gold Operations produced 107,546 ounces of gold, 6,247,950 pounds of copper, and 126,043 ounces of silver, or 122,806 ounces of gold equivalent. We sold 110,654 ounces of gold, 6,072,879 pounds of copper, and and 125 155 ounces of silver we incurred a cash cost of 538 dollars and an all-in sustaining cost of 864 dollars per ounce of gold for the year well below our realized gold selling price of one thousand seven hundred and eleven dollars per ounce our 2022 cash cost per ounce of gold decreased to 538 dollars from 614 dollars in 2021 the decrease in cash costs was primarily due to the successful ramp up of the expansion, allowing the company to achieve better economies of scale and a 20% increase in gold ounces sold from 92,560 in 2021 to 110,654 in 2022. 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 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.

Thank you, Justin. For the exploration and growth section of the conference call, let's begin with a major milestone that occurred on December the 6th at the BNG Mining and Petroleum Investment Conference, where the Honourable Sir Anil Palla, Minister for Mining for Papua New Guinea, announced a 10-year extension to our mining lease to June 2034. The extension was granted well ahead of the renewal date, so effectively it's almost 12 years from when the renewal was signed. And we believe that speaks volumes for the support for the operation from our various stakeholders, including quite clearly the government. Concurrent with that announcement, the board of directors of K92 approved the Stage 3 and Stage 4 expansions with the plan being very much to transform K92 into one of the industry's next great mines. So our K92 mine strategy growth pipeline has now been updated to reflect this milestone with Stage 3 now underway, Stage 4 approved. The tender process is well advanced for the various elements of the expansion. And we're pleased, I think, with the interest that we're seeing from many contractors and engineering firms. Regarding stage 2a, commissioning of the float tanks is planned for the second quarter with the installation of the two rougher cells, which will pretty much double our flotation capacity, well advanced, as you can see in the chair. Upon its completion, we expect to not only boost recoveries, but also potentially throughput. I'm also pleased to report we've recently received several key pieces of equipment on site, including new jumbo, shown in the image to the left, and a new long-haul rig, which just arrived a few days ago on the right. Other pieces of equipment that have arrived this year include a new loader, two integrated tool carriers, cement agitator, and another Nornet charging machine. most of that equipment was planned to arrive last year but delayed due to the global supply chain issues which we've all i think experienced we're certainly excited to have the equipment on site now we're looking forward to benefiting from the greater productivity and also from that expanded fleet On the twin incline, the furthest incline has now advanced 2115 meters as of the end of February. The performance of the development crew has been very strong and during 2022 the twin incline development was around 50% better than budget. From the twin incline we plan to commence drilling Kora deeps and Judd deeps towards the end of next quarter or early in the following quarter and they obviously are high prospective exploration targets within the mining lease. Later this year, we also plan to commence the first mining of the lower portion of the core resource from that twin incline. That's expected to provide a significant boost to our operational flexibility with a new mining front established at depth. In terms of the vein field exploration, drilling is underway at Cora, Cora Scythe, Judd, Judd Scythe and also Northern Deeps. Looking at the long section of Kora, Kora South, to date we've defined something like 2.65 kilometers of strike, with exploration from surface focusing on Kora South and underground exploration targeting Kora South, Kora Northern deeps. As noted earlier, towards the end of the second quarter of third quarter, Kora deeps drilling plan to commence from the twin incline. Now, Judd South, as shown in the long section here, to date, we've defined approximately 1.7 kilometers of strike length. Like Cora Cora South, Judd South is open in multiple directions, and we've intersected mineralization on almost every hole that we've drilled to date. Surface and underground drilling currently is targeting both Judd and Judd South. Judd Deep's drilling is planned to commence in the third quarter on the twin incline. February 21st, we announced 89 drill holes from the Cora, Cora Scythe and Judd Scythe drilling. The results recorded five dilatant zone intersections, including two at K1, with KUDD0035 recording at over 50 meters at 5.25 grams per tonne gold equivalent, and KUDD0038 recording 14 meters at around 5.5 gram per tonne gold equivalent. That's particularly significant as it's the first dilatant zone intersections recorded around K1. Drilling results at K1 also included KMDD 0504, which had 6.1 meters at 88.4 gram per tonne gold equivalent, our highest grade result in that particular release. At K2, we also intersected dilatant zone mineralization in hole KUDD0033, which had 27.9 meters at just under 10.5 grams per ton gold equivalent. And that was located approximately 100 meters up dip from the previously reported hole of KUDD0002, which had an intersection of 35.9 meters at 5.98 gram per ton gold equivalent. K2 also delivered numerous high-grade results, as shown on the slide there. At Judd, the results recorded two dilatant zone intersections, KUDD0032, which had 30.3 meters at 6.13 gram per ton gold equivalent, and KUDD0038, which had 28.7 meters at 4.53 gram per ton gold equivalent. The hit rate at surface at Judd and Judd South has been very strong with 54% of holes exceeding 5 grams per tonne. One of the highlights from Judd was KODD0026 which recorded 5.4 meters at 56.79 grams per tonne gold equivalent and that was located up deep from the existing Judd resource. So we see the potential for considerable growth in the Judd resource in that undrilled area towards the surface. So we're obviously very encouraged by the latest results intersecting the dilatant zone at an increasing hit rate. These zones represent potential endowment multipliers. The significantly greater ton per vertical meter and obviously amps per vertical meter. Based on our emerging understanding of these systems, we believe that they have the potential for considerable vertical depth extents and limited strike lengths and strike 180-200 meters. An increasing focus of our exploration program is to target these zones and increase our understanding of their potential. Now, on the porphyry exploration, after announcing the Maiden Blue Lake inferred resource of 10.8 million ounces gold equivalent or 4.7 billion pounds copper equivalent, which is the fifth largest known porphyry in Papua New Guinea, our exploration is now focused on A1. A1 is our number one porphyry target based on the airborne geophysics, MT geophysics, that we flew in late 2021, a surface mapping, and the SolGeoChem sampling that we've undertaken. As shown in the image, A1 is interpreted as being part of a large lithocat complex that hosts the Blue Lake Porphyry as well as the Aena target. A significant surface sampling program has been underway for several months and that combined with the geophysics has provided important vectors for our initial drilling program. I'm very pleased to report that we've recently commenced drilling at A1. It's currently one drill rig operating and we're drilling our first hole. We're looking forward to providing an update in due course. Lastly, I'd also like to highlight that concurrent with our drilling at A1, we're also continuing to advance exploration on what we call the transfer structure target, where our soil sampling program encountered a substantial high-grade anomaly proximate to the A1 target, approximate dimensions 100 meters by 750 meters. So with that operator, we'd like to commence the Q&A session. 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 are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. Once again, to join the question queue, please press star then 1 now. Our first question comes from Don DeMarco of National Bank Financial. Please go ahead.

Thank you, operator, for taking my call, and good morning, John and team. Congratulations on a Q4 with a very strong cost. I think I'm going to start off my questions, though, regarding the challenge in ground conditions. You mentioned, John, that had the mine been more developed could have drawn from other soaps and and mitigated any impacts and maybe this would be a non-event um do you have confidence that the challenging conditions are localized and not more extensive or pervasive uh thanks don um yeah look i'd say that uh we're um

We're certainly confident that the areas that we have which have this challenge, if you like, first of all, that we can actually mine the areas as we set ourselves up more comprehensively. Secondly, that they are limited in extent, but nevertheless, They represent an area that gives us some challenges, but also gives us some opportunities in that we've effectively got an area where in between our K1 and K2, we get a, they all but merge a long strike and hanging wall area in that, and it's a hanging wall area in that particular area. But that hanging wall also has grades. So our focus is actually about also being able to mine that area and recover not just the K1 and K2, but actually to be able to take out that material. So it's, yeah, it has given us a short-term problem, but we don't see it as a long-term problem. And in fact, it provides us with something of a, a longer-term opportunity in that there is material that sits there which isn't in our resource as it currently stands.

Okay. So it sounds as though the impacted area is localized. It's limited to maybe where the K1 and K2 hanging wall intersects or something like that, but you're feeling pretty confident that you wouldn't see this elsewhere?

I can't say we won't see it anywhere else, but whether it's there or not, I think it's something that we, as I say, see as something that we will be set up to mine and actually be able to get answers out that right now are not in the resource.

Okay. And you mentioned that the Q1 is going to be below budget, but Q1 is also impacted by the mill. unplanned downtime, Q2 moderately below budget. Does this imply you can kind of see beyond the impacts are greater in Q1 than they are in Q2, and you can see beyond a remedy for the underground challenging conditions at this point?

Oh, yeah. Yeah. I mean, as you say, we were also impacted in Q1 with a couple of plant issues. And the reality is, if you look at the fourth quarter, the fourth quarter was our best development quarter ever. And we see that being similar sort of numbers in the first quarter this year. And we're certainly expecting to see the numbers actually go up this year. So our development meters are increasing. as we've brought in more equipment. Last year and the year before, we're both behind budget in terms of development meters, which in part was COVID and in part was delays in arrival of equipment, which I think the whole industry has seen. We've certainly caught up on the equipment that was on order, and you've seen a few photos there in the presentation of all that nice new gear arriving so we're actually seeing ourselves increase our flexibility underground even though we're ramping up production actually increasing our flexibility underground because we are increasing our development meters and then as i mentioned we've also got the twin incline actually coming in to the bottom end of our resource and hopefully it's the bottom end right now, but with the drilling that goes on from down there, it'll be extending in depth. And that actually gives us a whole new area, which we open up and therefore you get a big step up, in fact, in your flexibility for the underground mine.

Okay. And so looking beyond a couple of hiccups in Q1 then, When we look at the production trajectory that was detailed in the PEA, given that your mining rates are increasing and so on, do you still feel that that 200,000, 300,000, 500,000 ounces production within a few years, you're well on track for that?

Yeah, we certainly do. I mean, the actual, the long lead item, if you like, for underground has always been the twin incline. The twin incline is actually ahead of schedule right now. So that gives us, as I say, improved access underground and the ability to further expand the resource beyond what's in the PDA. And in fact, we anticipate, I think, towards the end of the third quarter, we will have an update of both CORA and Judd resources. And some of that resource will be outside of the mining lease, but quite a bit of it will actually be inside the mining lease. So it actually increases the number of ounces that we've got to mine immediately as part of that feasibility study PEA. Okay. The biggest challenge is more, I would say, the lead time in equipment for the plant.

Okay. Well, thanks a lot, John. That's all I have for my questions. Thanks, Don.

Once again, if you have a question, please press star, then one. Our next question comes from Chris Thompson of PI Financial. Please go ahead.

Thanks for taking my questions, guys. Just a quick one. You mentioned, I guess, some of the challenges and the need for sourcing some low-grade sort of stockpile or to supplement milk feed in the Q1. Could you give us a sense of what sort of head grades we can anticipate on a blended basis for the Q1?

What sort of head grades? Not at this point. We haven't. I mean, we haven't finished a quarter yet. We nearly have. But I mean, we'll have the numbers out in the next week or so, Chris. okay all right but you know you you we can anticipate what a substantial drop do you think from uh from what you delivered in the q4 is it more uh it's primarily grade rather than tons and we're obviously down a bit on tons in what we process because we did drop eight days in the plant but it'll be more driven by grade than than than tons

OK, alright, thanks John. And then just a quick one. Just just curious actually, could you get a sense of of of the copper grades? You know, obviously can we expect a step up in in in in copper grade through the through the mill and you know, obviously with the commissioning of the of of of the the expansion of the plant, new flotation and that.

Uhm? So the copper. we do expect to increase this year on last year. And I think last year was a slight increase from the year before. Overall, that grade will gradually pick up to around 1%, whereas I think last year it was 0.5, 0.6%. In terms of our concentrate grade, I think we're We've seen over the last couple of years that the concentrate grade in the copper has gone up significantly. We're now running at probably 15% to 20%. And certainly going forward, we see that overall our grades will be probably closer to the 20s and the 15s. And the plant the additional capacity in the plant is not necessarily going to push up the grade, although we do expect to get a bit of an improvement in grade. It's more about being able to get, A, being able to push more tons through, and B, we think we'll pick up a couple of percentage points improvement in our recovery of both gold and copper, simply because we've got more rougher capacity Right now, the rougher train comprises of two parallel lines of four cells. With the addition of the new capacity, we've got two cells that then split into those trains. So effectively, you've got a line of six that allows us to to modify the last rougher to actually be a scavenger, which is not something we've ever had, which, of course, allows you to push up your recovery without compromising your final grade.

Great. Thanks, John. And I guess my final question, I know that Justin was talking a little bit about some of the costs coming down on a unit cost basis. Do you think that's, you know, I guess, can you give us a little, maybe sort of unpack that a little bit, the components of that cost reduction?

So when you look at our overall costs, first off, okay, we were within our range in terms of production ounces. In terms of the all-in sustaining costs, the reality is with the late delivery of some of our equipment, we didn't spend everything, we didn't spend all of the capital that we intended to. And so we were in a situation where, plus of course our development meters were were behind where we had budgeted last year. So a combination of that obviously gives you less sustaining capital that was actually spent. And hence, that brings down our all-in sustaining cost. In terms of cash costs, We built into that some, for instance, ramp up in our labor. And we didn't ramp up quite as much as we allowed for. So labor costs were a little bit less. And I think some of the costs that we anticipated coming through in terms of increases, which all of the all of the industry have seen some of those didn't come through as much as as much as we anticipated. So we got some benefit. We got some benefit as well from that. So. And a few improvements, you know, unit unit rates came down because we actually we actually mined more tons than than ever before, number one, but also we mine more tons in budget. So I think importantly in some ways for us, our costs in terms of tons mined were actually down as well, which of course is important from an operating perspective.

Great. And then I guess finally very, very quickly, John. I know labor availability in the past has been a bit of an issue, more so because of COVID, I guess, and expat availability. Where do you stand now? Can you maybe comment on availability on a forward-looking basis?

We've been fairly happy with Availability of labor. In terms of expats, and expats make up around 45% of our total workforce, we haven't had any issues in recruiting of expats. I think we've only got currently maybe one or two positions out of 70 that we're busy recruiting for. Um, and bearing in mind that's expanded numbers. So we're actually expanding the numbers that we have. Um, so although Australia is reported to have, uh, you know, quite tight numbers, what we're finding is, is, um, that pool that we, we use, which of course are the, are Australian mining professionals who actually work offshore. And it's a subset, if you like, and it's a quite distinct pool. We're actually finding this good availability in that area, in part, I think, because areas like West Africa are less attractive because you've got longer rosters. And one of the things I think that was highlighted by COVID was if you do have a medical issue, In the middle of COVID, suddenly your medivac out of West Africa is complex to say the least. Whereas if you're where we are in Papua New Guinea, you jump on a plane literally from where we are and two hours later you're in Cairns. That also means that we run shorter rosters so they're more family friendly and people look at those things when they're looking at where they're going to work. we've actually found that that's pretty good. In terms of P&G nationals, certainly there has been recorded that economic activity has dropped in Papua New Guinea. And that means that professional people, including things like fitters and boilermakers and electricians and whatever else, that there is a good supply of those at present. And we're certainly doing our part in terms of stepping up our training, particularly looking at artisans. So the fitters, boilermakers, electricians, they to us are pretty key in our business going forward. And so we've been expanding our training facilities and our capacity so that we're actually taking on apprentices and bringing apprentices through the whole system. The other one that's helped us is that the Philippines has also opened up and the Philippines, especially in things like the more senior guys that we would bring in as expatriate type people. there is an excellent supply of those type of people, highly qualified and competitively priced out of the Philippines. And we have daily flights from the Philippines to PNG. So we do employ a number of people out of the Philippines as well.

Fantastic, John. As always, thanks for the comprehensive answers. Thank you.

Thanks, Chris.

Once again, if you have a question, please press star then one. This concludes the question and answer session. Pardon me, we do have another question from Ralph Profiti of Eight Capital. Please go ahead.

Thanks, team. Thanks, operator. Sorry about the delay there. John, can you give us some indications on the hold back of giving the growth capex? Is there particular procurement items that are still kind of in the queue that you're waiting for clarity on? Just wondering what the timing is and perhaps what are some of the key items that we're still waiting for?

Okay. Thanks, Ralph. So we've actually been out in tender for all the major long lead items on the plant, which is the major part, obviously, and lead time for the whole project. We've got all those tenders in and we're in the process of awarding the contracts for those and putting the orders in. The contract for the actual construction of the plant and the The pay school, we're finalizing that over the next month to two months. So we'll have those contracts in place. And when you look at the overall capital, those are the main items. So that's the main part of our capital. So we've got most of our capital tied down as to cost and all the rest of it. But there are still a few items that we're trying to finalize. And it's also about the timing that we're actually going to be paying for those things. So hence, it's about deliveries and about how long we actually take to get some of that equipment when it's going to be arriving and therefore what our payment schedule looks like. So it's a two-year project overall, the capital we're we are very comfortable with where we sit in terms of our estimation. The issue is what comes in where.

Okay, understood. And if I can just come back to the impacts of the ground conditions in Q1 and Q2, can you maybe sort of put that in the context of the impact to some of your dilution estimates and design and how that could be impacting dilution on this temporary basis as you work through these intersecting zones of K1 and K2?

I think right now, we don't see it as being significant in terms of dilution. Overall, in certain areas, we may pick up additional 5% or 10% dilution than we've allowed. But I couldn't honestly say that it will be 5% or 10%. In some areas, maybe nothing at all. So a potential of 5% or 10% in given areas, that's probably about where it sits. Right now, from the perspective of, quite frankly, ounces and all the rest of it, With the commissioning of the additional rougher capacity and whatever else right now, we believe we can probably get an extra 10% out of our plant. And you can see from some of the daily numbers that we've shown there, we certainly appear to be able to get 10% and more on a daily basis. It's a question of whether you can keep that sustained over a longer term. Certainly our MET guys believe that they can. So we'll probably have the mill chasing the mine for part of this year before the mine get back on top again. And then they'll be giving our MET guys shit about how come you're not treating all of our material.

Gotcha. Thanks, John. Those are very helpful answers. Appreciate it.

Okay. Thanks, Ralph.

Our next question comes from Alex Tarantew of Stifel. Please go ahead.

Yeah. Hi, everybody. And my question is ideally timed to your last comments there, John. So two questions really for me. So on your underground development, how many meters are needed to get you back on track to have that flexibility that you need to avoid relying on stockpile. I know your development rates have been picking up and Q4 was record, but given you were behind, I mean, how far behind were you and how much do you need to catch up this year?

1,364.5 meters, I think is the amount. Yeah, I just need to confirm the actual detail. Alex, it's, Certainly, if you look over the last year, about 1,000 meters, a bit over 1,000 meters behind where we want to be. And by the end of this, and the budget that we've set up for this year gets us back on track. And we've got our additional equipment in. We've got more equipment on order. We've relied for that to take longer than we've been told it'll take. so the budget we have for this year basically gets us back on track. And I think by the end of the year, we're looking to be up at around a thousand meters a month, whereas currently, you know, we're around about the 750 meters a month.

Okay. No, that makes sense. Perfect. And then, you know, a related question, and this goes to your comments that you just made to last to Ralph there about the You know, mine versus the mill. I mean, it's great to see the mill hitting some lofty throughput numbers, 800 tons, sorry, 1800 tons a day. But, you know, what do you think? I mean, obviously, this first part of the year is a bit different, but come the second half of the year, what do you think a sustainable mining rate could be? I mean, obviously, it's going to increase over the coming years as you do phase three and phase four. But I guess my question is, you know, your guidance is 120 to 140,000 ounces. What opportunities do we have to have the second half this year make up some of potential losses in the first part?

Okay, well, there's two things. Obviously, there's grade and there's throughput. Grade-wise, second half of the year in our mine plant has significantly higher grade than the first half of the year. So it's anticipated that second half of the year would be higher than the first half of the year, basically the same as it was last year. And So first off, grade will pick up in the second half of the year. The second point, overall we've assumed in the budget, or we've budgeted, not assumed, budgeted that we are pretty flat in terms of throughput, i.e. we're doing around about 125,000 tons per quarter. We certainly think there's the potential to, to see in the second, third, not so much in the second, but more in the third and fourth quarters, that in fact we can do better than 125,000 tons. And that will be about, A, the mining. We actually think from a plant perspective, as I said, we've probably got an extra 10% that we can get through. So personally, I'll be disappointed if we can't get at least 130,000 tons per quarter in the third and fourth quarter, which is an extra 5% or thereabouts through the plant. And obviously, to get it through the plant, you've got to be able to mine it as well. So there is definitely potential. Is there potential to go beyond there? I'll talk to a couple of our METs, and they'll tell you they can do better. We'll see on that one.

Okay, great, thanks. And just one last question then on exploration. It's great to see you guys have started drilling on A1. Can you maybe just give me a little bit more details on the plan there? So the first assay is probably, I guess, June or so that you guys, or later in May or June, you get back. And how many holes or meters you guys have planned on A1 for this year?

Okay, so the first program, I think we've got 12 holes 500 meters planned, and it's a pattern drill, pretty much the same as we did at Blue Lake, where we did an initial program of up to 500 meter deep holes, and then we followed that up with a second program, which were deeper holes based on the results of the first holes, where it gave us vectors of where we should focus our target for that targeting that potassic core. And we're looking to do the same sort of thing at A1. So we're not gonna immediately hit it with 1,000 meter deep holes or whatever. We're looking at that initial pattern as a sale of 12 or 500 meter holes. That'll be really through second quarter, third quarter. We expect to have that completed in the third quarter. Obviously, it will be pulling all the results in. And again, same as we did at Blue Lake, we've got a couple of consultants that we use as well, because as you're aware, Alex, it's not just about what did you get in terms of grades, assays of copper, gold, whatever. It's also about what are you seeing in alterations what are you seeing in your mineral assemblages, et cetera, et cetera, and using all of that information to help us target where we want to be drilling in that second program of drilling. So hopefully that answers your question.

Yeah, no, that's great. Thank you.

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

Oh, thank you. Thank you for that, Ariel. So I think we've come off an extremely strong quarter. I mean, records in all mined, all processed, total tons mined, development meters. It really was quite exceptional. When you then bring in 2022 beat of cash costs and all in sustaining costs, it really finished off the year strongly and set us up for this year and going forward. Added to that, we had the renewal of our mining license for 10 years, which when you consider that it was renewed almost two years ahead of schedule, we've actually set ourselves up with 12 years from when the renewal occurred, which of course immediately allowed us to move into stage three and stage four expansion, which potentially sees Kenanto become the tier one mine that we all know it has the potential to do. This year, we've obviously now moving into that expansion mode. And importantly, we've got a massive exploration program on the go. We are the largest explorer in Papua New Guinea. I think we spend more than almost everyone else put together, currently running 11 rigs, and that potentially will step up. We'll be going into new areas that we have not drilled before. a bit like star trek um to boldly go where no man has gone before um or woman but the the exploration certainly i think is is uh there's a lot going on there that's really exciting for us i think for uh for 2023 uh i think finally you know i just like to record and recognize our gratitude for the outstanding contribution that our late chairman Tuki Angus made to this company. To have known and to have worked with Tuki really was a privilege. We stand as a company where we are today in no small part due to his leadership. I would say that fortunately a major part of Tuki's focus was actually establishing a talented and a cohesive board of directors And we now have that, which will enable us to move forward, I believe, with confidence. But he will nevertheless be sorely missed. So thank you for your attendance today. And all the best to you and your families. Thank you.

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