K92 Mining Inc.

Thank you for standing by. This is the conference operator. Welcome to the K92 Mining 2024 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 will be an opportunity for questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to David Medelak, President and COO. Please go ahead.

Thank you, operator, and thanks, everyone, for attending K92 Mining's 2024 Fourth Quarter Results 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.

Thank you, David, and welcome, everyone. I'll start with safety, which is always first priority. I'm pleased to report that there were no lost time injuries recorded in the fourth quarter, marking yet another major safety milestone with now six consecutive zero LTI quarters. During this time, two independent safety audits were completed. From those audits, a number of actions were identified, and many actions have been taken and completed to date. Safety technology and site has been enhanced, including a proximity and collision avoidance system and in-cab monitoring, with more systems planned in the future. Resources for safety and training have been and continue to be expanded, including additional personnel. There's also been multiple positive leading indicators as shown in the charts for several consecutive quarters. There has now been a significant increase in job safety assessments to reinforce our safety first mindset and the number of safety warnings from our in-cab monitoring system has significantly reduced. As stated on previous conference calls, we take the increased loss-term injury frequency rate in 2023 very seriously, while also noting that historically K92 has operated with one of the best safety records in PNG and the broader Australasian region, as shown in the previous slide. I'd like to reiterate that K92 is relentless in its pursuit of our goal of achieving zero harm amongst our workforce. K92 is extremely pleased and proud to have received yet another Industry ESG Award during the P&G Investment Week Conference in Sydney in December. This time for Outstanding Community Humanitarian Initiative. The award recognizes K92's Sustainable Livelihoods Agriculture Program. It's a program that has rapidly grown with approximately 180 farmers participating, of which approximately 80% are women. This has enabled the communities to supply fresh produce not only to K92, but also to local vendors and markets, reaching as far as supermarkets in Port Moresby. In early March of this year, the first large shipment consisting of eight tons of produce from farms arrived in Port Moresby, which is testament to the size, scale, and overall success of the program. We're currently in the process of working with international partners to upscale this program even further. K92 is extremely proud of the positive impact we're having on the prosperity and development of Papua New Guinea, and we encourage you to read our latest sustainability report found at www.k92mining.com. Moving on to operational performance. During the quarter, the K92 gold mine delivered record quarterly production of 53,401 ounces gold equivalent. The total of 96,614 tons were processed at a head grade of 18 grams per ton gold equivalent, which was the highest head grade since Q4 2020 and well above budget. Benefiting from higher grade stops in the sequence as outlined in the 2024 operational guidance, increased proportion of high grade tonnage utilized for the process plant blend in addition to a positive gold grade reconciliation versus the latest independent mineral resource estimate. Due to these higher grades and a lack of lower grade to blend with this material, throughput was deliberately reduced to maximize recoveries. For the year, a record 149,515 ounces gold equivalent was produced, delivering year-over-year production growth of 27% that significantly exceeded the top of our production guidance range of 120,000 to 140,000 ounces gold equivalent. In addition, cash costs of $664 per ounce beat the guidance range of $820 to $880 per ounce, and all in sustaining costs of $1,066 also beat the guidance range of $1,440 to $1,540 gold. As annotated on the chart, all in-sustaining costs have been notably higher than cash costs since the beginning of 2023 due to K92's ongoing considerable investment in our Stage 3 expansion, with costs expected to decline significantly after delivering the expansion, which will be discussed later in the presentation. In terms of their key operational quarterly physicals, total material mine was the second highest on record, with plant throughput, as noted earlier, significantly reduced to maximize recoveries due to the high head grades. This provided us with the opportunity in the underground mine to prioritize waste development for Stage 3 expansion, resulting in a record of 209,000 tons of waste mined. Development delivered a notable increase of 17% from Q3, including a monthly record set of 904 meters in the quarter. The development rates in Q4 are particularly encouraging as it was largely ahead of the various key enablers that are required to be integrated. These include the power upgrade, which was completed in Q4 and certainly was a factor for the improved quarter over quarter advance rates, especially late in the quarter. The interim primary ventilation upgrade, which was actually only completed in January. This has resulted in a 50% increase in airflow, which is notably higher than the 30% increase expected, confirming that the modeled airflow resistance factors for the expansion were conservative. The second stage of the interim water upgrade, which was completed at the end of January, providing clean water services to the main mine. Number of available headings also increased significantly and will continue to increase through the year driven by opening up of additional mining fronts. High-speed development experts, a major focus is on the enhanced maintenance program to increase equipment availability. Now, in 2024, the process plant delivered very strong performance, including daily, weekly, and monthly records that were 12%, 31%, and 45%, respectively, higher than the 600,000 tons per annum or 1,644 tons per day that the Stage 2a plant upgrade has been designed to achieve, which was outlined in the definitive feasibility study. Recoveries have also been very strong, with the last three quarters of 2024 recording gold recoveries notably higher and copper recoveries moderately higher than DFS. Now, this outperformance is driven by a trialing of a new reagent mix, which was identified as part of the DFS metallurgical test work program. And in addition, we benefited from those higher gold grades in the second half of the year. Now, the strong performance of the Stage 2A plant bodes well for the Stage 3 plant, which has a more optimal circuit design, improved technology and instrumentation, including online analysis. I think the throughput records also highlight the potential that the Stage 3 process plant, which was designed on the same conservative throughput parameters as a Stage 2A process plant, is much more capable than its 1.2 million tons per annum design. And as a result, the Stage 3 process plan currently being built has been designed to make allowance to make it cost-effectively expandable through simple upgrades to the flotation and filter press capacity to achieve our 1.8 million tonnes per annum that we're looking for in Stage 4. I'll now turn over the call to our Chief Financial Officer, Justin Blanchet, to discuss our financial results for the fourth quarter.

Thank you, John, and hello, everyone. During the fourth quarter of 2024, we had revenue of $120.3 million, an increase of 60% when comparing to 2023. We sold 48,851 gold ounces at an average selling price of $2,564 compared to 33,273 ounces at an average selling price of $1,898 in the prior year. As at December 31, 2024, there was 4,961 gold ounces in inventory, including both concentrate and dore, an increase of 3,074 gold ounces when compared to September 30. During the year ended December 31, 2024, we had record annual revenue of $350.6 million, a 75% increase from prior year. we sold a record 141,159 gold ounces at an average selling price of $2,356 compared to 97,355 ounces at an average selling price of $1,869 in the prior year. During the fourth quarter of 2024, our cost of sales was $32.6 million compared to $35.9 million in the prior year, or $23.8 million compared to $24.9 million before non-cash items. Lower cost of sales was partially due to a buildup of our ore stockpile inventory and concentrate and dore inventory that was expensed subsequent to year end. During the year ended December 31, 2024, cost of sales was $142.2 million compared to $111.4 million in the prior year, or $106.8 million compared to $77.7 million excluding non-cash items. Cost of sales is higher primarily due to lower costs capitalized as development costs, higher depreciation and depletion costs, as well as higher royalties due to increased sales when compared to 2023. Q4 2024 cash flow from operating activities before changes in working capital was $72 million compared to $38.6 million in the prior year, a new quarterly record. For the year, we also saw record cash flow from operating activities before changes in working capital of $170.4 million compared to $82.1 million in 2023. As of December 31st, 2024, we had $141.3 million in cash, cash equivalents, and term deposits, plus $20 million in restricted cash, which subsequent to year-end became unrestricted, while still spending $102 million in expansion capital. At December 31st, 2024, K92 had a working capital balance of $117 million and a loan outstanding balance of $60 million. As John mentioned, During the fourth quarter, the Kinantu gold operations produced 51,371 ounces of gold, 958,312 pounds of copper, and 41,992 ounces of silver, or 53,401 gold ounces equivalent. We sold 48,851 ounces of gold, 954,657 pounds of copper, and 42,088 ounces of silver. During the year, the Kanantu Gold Operations produced 139,123 ounces of gold, 4,926,738 pounds of copper, and 142,009 ounces of silver or 149,515 ounces of gold equivalent. We sold 141,159 ounces of gold, 5,051,087 pounds of copper and 145,428 ounces of silver. In Q4 2024, we incurred a cash cost of $483 and an all-in sustaining cost of $837 per ounce of gold, which was significantly below our selling price of $2,564 per ounce. For the year, we incurred a cash cost of $664 and an all-in sustaining cost of $1,066 per ounce of gold, which was also significantly below our selling price of $2,356 per ounce. Our 2024 cash cost per ounce of gold increased from $585 in the prior year to $664. The increase can be attributed to expenditures incurred during the temporary suspension in the first half of 2024 lower amounts of costs capitalized to development, and lower amounts of byproduct credits when compared to prior year. It is important to note that we will see downward pressure on costs via economies of scale as operations ramp up and the stage three expansion is complete. 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, We begin with an update on the Stage 3 and 4 expansions. which plan to fundamentally transform K92 into a Tier 1 mid-tier producer through sequentially increasing production to over 300,000 ounces gold equivalent per annum with the commissioning of the Stage 3 expansion targeting the second half of second quarter of 2025, and then to over 400,000 ounces per annum gold equivalent with Stage 4 targeting second half of 2027. As at the end of February, 75% of stage three and four growth capital has either been spent or committed with a significant portion of the project on a fixed price lump sum basis. Importantly, the project is fully funded and our financial position is strong. K92 has a strong cash balance, ending 2024 with $141 million in cash, plus $20 million of restricted cash. And the restricted cash subsequently to the quarter end became unrestricted in January, and we'll report to our cash balance in our Q1 financials. We also have access to significant amounts of liquidity through an undrawn credit facility, with $60 million available to draw down on demand, and an additional $30 million of liquidity available through an accordion feature. the record gold price environment has resulted in strong free cash flow generation. As Justin noted, our net cash balance grew significantly during the second half of 2024, even after considerable capital expenditure during the period. And lastly, our commodity price downside is protected through the cost-effective purchase of put option contracts. In late September, we purchased for $2.2 million Option contracts for the next nine months covering 12,500 ounces of gold per month at $2,400 per ounce to protect against downside price risk. To be clear, it's not a hedge. We sell at spot if it's higher, which it obviously has been. This is an insurance, and we retain full exposure to the upside in commodity prices. In summary, our financial position and outlook is obviously very strong. Now, in January, we announced our 2025 operational guidance, outlining yet another year of production growth, forecasting 160,000 to 185,000 ounces gold equivalent production, while making significant investment in terms of both sustaining capital and growth capital as we transform Kenantu into a tier one mid-tier producer. Production is expected to be back-end loaded again, driven this time by higher throughputs as the new Stage 3 expansion process plant is commissioned and then scheduled to be handed over to operations in Q4. Production in the second half of the year also benefits from stockpiling planned in Q2 ahead of the Stage 3 expansion process plant coming online. Moving on to progress for the Stage 3 expansion construction and starting with the underground, the twin incline is complete. The first ore pass has been developed and expected to be fully operational mid-year. Puma incline breakthrough is also planned for around mid-year. Upon breakthrough of PUMA, we expect an additional 50 cubic meters per second airflow, with a further 50 cubic meters per second airflow forecast upon development of the next ventilation race, representing a 50 to 60 percent increase in air flows from current levels. I note that we're drilling the pilot for the ventilation race right now. And due to the previously conservatively modeled mine resistance factor, which we mentioned previously, we now expect to not need that new primary vent fans to meet our initial Stage 3 vent requirements. These fans are needed for later Stage 3, Stage 4, and so our plans are to opportunistically install these in 2026 to minimize disruptions to production, which obviously we'll have in installing them. On the paste fill, commissioning is targeted to commence in Q4 after the process plant has been handed over to operations. And while the infrastructure is being transformed, so is our mining on a number of fronts with significant increases underway due to the ramp up. So we now move on to the drone footage taken just a few days ago with the construction site for the 1.2 million ton per annum stage three expansion process plant. Starting at the dry end of the plant, in the foreground, the ROM pad continues to be constructed with waste rock as it becomes available from underground. Work on the primary jaw crusher was well advanced. Thus far, the conveyor cable tray and the transformer have also been installed. The surge bin is approximately 95% complete. On the grinding circuit, preparation works are well underway for the installation of the ball and sack mills. The cyclone tower, as you can see, is installed, maintenance crane also installed, and the installation of electricals under the MCC and mills is underway. Piping installation is also ongoing. For the flotation area, all works are active for structural, mechanical, and piping installation and are approximately 95% complete. The installation of the flotation sail hoppers and pump installation is also ongoing. Pipe racks for water services are also being installed. In terms of the thickeners, the concentrate thickener is nearly complete and the tailings thickener is about 85% complete. Lastly, water services are ongoing. All the pumps and piping have been installed. The electrical installation is in progress. I'm also pleased to report that all the civil works are complete. In terms of ancillary buildings and construction, pleased to report the warehouse construction is now complete, as is the interim power plant. For the pasteful, all long lead items have been ordered. Front-end engineering design work is completed. Detail engineering and design contracts have been awarded to GR Engineering and Quattro Engineering, and early earthworks are underway. Underground construction contract has been self-awarded, and the construction contracts for the tailings filter plant, the surface storage system, are planned to be awarded later this quarter, early Q2. I note, in early February, we were pleased to have hosted the Governor of Marobi Province, one of our two key provinces, the Honourable Luther Wenge. It was his first time visiting the Kenantu Gold Mine, also his first time visiting an underground mine. We're delighted to have taken him on a tour of the underground mine process plant, as well as the Stage 3 construction sites, and also our various exploration sites via helicopter. The visit received significant positive coverage by local media, including significant TV coverage. Now in terms of exploration, we're currently drilling the Cora, CoraSouth, Judd, JuddSouth vein systems from underground, plus the AraCompa vein system from surface. We've just completed a program of drilling CoraSouth, JuddSouth from surface this month. Now on the 3rd of December, K92 reported a total of 95 holes at Cora, CoraSouth, Judd, JuddSouth. These results continue to demonstrate that this is a world-class deposit with significant growth upside. The results announced multiple new near-mine infrastructure dilatant zones in the twin-incline mining front, as outlined by the two blue dashed lines inside the lower black ellipse there, in addition to extending the high-grade zones as shown in the upper black ellipse. The discovery of the new dilatant zone near mine infrastructure, it's particularly significant as it represents the first time that a dilatant zone has been drilled off with sufficient drill density. Prior dilatant zones discovered have been largely through wider spaced surface drilling. What these particular dilatant zones show is that there is significant strike length potential of these zones, with K2 recording over 100 meters of strike and K1 recording approximately 60 meters of strike. These dilatant zones are approximately 175 meters from our underground workings, and upon completion of the paste-fill plant, we'll be in a position to unlock this high productivity potential of these zones for the expansion. Now, at JAD, results continue to extend high-grade mineralization up-dip and above the main mine workings, as shown in the top black ellipse there, in addition to recording multiple high-grade results outside of the current resource. On February the 20th, we announced the latest 13 holes at Atacompa, bringing the total number of holes drilled in the maiden drill program to 43 holes. A major highlight from the results is the confirmation of two significant high-grade veins over a significant strike length, named AR1 and AR2. Based on drilling to date, both veins are thick, recording average true thickness for AR1 of 3.14 meters and 2.94 for AR2, over strike lengths of approximately 675 and 775 meters, respectively. with a strong high-grade drilling hit rate, plus 5 gram per ton gold equivalent of 50% for AR1, 42% for AR2, and a plus 10 gram per ton gold equivalent, 28% for AR1, 21% for AR2. We clearly see high potential for underground mining of high-grade vein system at Atacompa. The drilling results also extended the interpreted bulk tonnage zone approximately 150 meters to the south. The zone is now defined as 900 meters along strike and to a vertical depth of approximately 650 meters with an average true thickness recorded from drilling of around 48 meters, demonstrating strong bulk mining potential. The bulk zone remains open in multiple directions and we view it as a longer dated project with the high grade the priority in the near term. It's important, I think, to illustrate just how rapidly Arakampa is growing. The far left image is from February 2024, and our latest drilling results are shown on the far right, approximately one year later. When we commenced drilling at Atacompa, we had one rig operating, but given the significant exploration success to date, we've had up to four rigs operating with plans to continue to increase upon this delivery of additional rigs in addition to commencing exploration at Maniapi, a parallel vein system less than a kilometer away later this year. Importantly, only approximately 50% of the non-mineralization strike length of this corridor has been drill tested by K92 to date, and that's the non-mineralized strike length. I think lastly, we'd like to highlight the significant pipeline of highly prospective exploration targets, which we have around the Kenantu mine. The colored icons indicate where we're currently drilling. The black icons indicate where we plan to drill in the next 24 months. Upon delivery of the Stage 3 expansion, we expect not only a major inflection in our production and free cash flow, but also a significant ramp-up in our exploration budget, aiming to target many of these highly prospective targets concurrently. And with that, Operator, we'd like to commence the Q&A session. Thank you.

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. The first question comes from Alex Tarantute with Ventum Financial. Please go ahead.

Yeah, hi, guys. First of all, I just wanted to say congrats on finishing the year very strong. I'd like to see those numbers. First question here, outlook for 2025. I know we're two months in. I'm just curious if any insights as to how things are tracking so far. And maybe more in particular, you know, any thoughts or comments you can share on grade and tonnage expectations? And I'm asking just considering how strong the second half of the year was where it you know, your grades were up quite a bit and your throughput was dialed back. So especially for the first half this year, if you have any insights you can share, that'd be great.

Okay, thanks. Thanks, Alex. In terms of the outlook for 2025, obviously we've given our guidance and we're, you know, that's our numbers at this point in time. it is a relatively wide guidance because we are obviously commissioning our stage three. And as was said in the presentation, the expectation is certainly that unlike previous years where the back end loading has been grade driven, in this instance, we believe that the back end will be more tonnage driven as we as we bring stage three plant into full production in the fourth quarter. I think in the context of the first quarter, what we have said is that we have seen a continuation of the higher grade that we saw in the fourth quarter. And so there is certainly an expectation that the first quarter will will probably be the highest grade for the year with some of that higher grade obviously coming through during during the quarter so certainly we we do expect i mean basically the all quarters are going to be pushing up from where they have been in the past and um and certainly the first quarter will see a similar sort of thing where we do expect it to be strong in comparison to previous first quarters.

Okay, that's good. Thanks for that. Second question, you noted on the call earlier building of a stockpile ahead of the mill starting up later in Q2. Any color you can give on the size of that inventory that you want to build and how you're tracking on that target? And then I guess kind of a related question, I know you've got two separate mills, the current one and the new one that you're building, but should we expect any sort of downtime as you make that transition, or are you going to try to kind of keep things continuously operating?

Okay. So first of all, in terms of stockpile, the intent is to focus on opening up underground and not necessarily bringing too much to surface because we do get oxidation if material sits too long on the surface, we're okay for a couple of months. But longer than that, you can see oxidation, which is variable depending where it comes from and how much sulfides you've got in it and what have you and how fine they are. The expectation in terms of stockpile by the end of the second quarter, we're certainly looking for somewhere between, I think, 10 and about 20,000 on the ground. And so what was the second part of that question?

I was just curious how you guys are tracking so far, but like you said, if you're focusing on building up the opening of the silks underground, then maybe.

Oh, sorry. Yeah, the second one was the plants. Okay. So the intent is to continue running the old plant through until some point in the fourth quarter so that the existing plant continues to run normally, certainly during the third quarter. while we're going through the commissioning process for the new plant. And at some point during that fourth quarter, we'll switch off the old plant and we'll be running only the new plant. Now, in order to be able to do that, we have recruited additional people. That includes, I think we took almost the entire graduates from the University of Ley that came out end of last year, beginning of this year. All the metallurgical graduates have got a year with us. I mean, we take some every year, but we basically, yeah, we've taken more than the entire rest of the industry and basically every single graduate, I think, who qualified this at the end of last year. has got a job with the vast majority of them are with us. So we have built up the numbers so that we can do that. And then also that they can be involved in that set up optimization of the new plant going forward.

Okay, that's it for me. Thank you.

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

Thanks, Drew. Well, I mean, obviously, we have been exceedingly pleased with the second half of the year. The numbers, I think, reflected and confirmed our our confidence in the ability of the mine to deliver, even though we had a hiccup during the first half of the year. To be clear, the better than guidance performance was driven by primarily higher grades coming out of primarily Judd. We had about 20% more grade, I think, out of those stopes than we anticipated. So probably close to 10,000 ounces that came out in Q4 came from a higher than anticipated grade. And for clarity, we don't expect that suddenly the mine will start producing 20% more gold than the mineral resource estimate says it will. It was a specific area within Judd, and certainly something we'll we'll look at when we do the next update in the Mineral Resource Estimate for Chatham Cora next year. Also importantly was the significant increase we saw in recoveries where we kicked up to 95, 96% and in fact beyond there in certain circumstances. And while that was certainly partly driven by grade, It was also, as mentioned, the new suite. And so that probably added 2,000 ounces to the second half of the year, which is substantial when you consider that there's no cost associated with that. That's simply getting more out of what you've mined. That bodes really well for the new plant when you consider that the new plant is obviously it's got far more technology. There's more process control and of course it's got online analysis so that you're getting results and able to more effectively control the plant itself so um certainly it bodes well for the future and and we certainly anticipate at this point in time we'll see better recoveries than we've allowed in in the uh in the study which i think are running at about 92.9 for gold We certainly expect to see better than that from the plant going forward, which should see an improvement in the numbers that come out of the Stage 3 and Stage 4 expansion. We've set ourselves up well for what is our most transformative year to date, where we bring in our Stage 3 expansion. with the start of commissioning of that around mid-year. We're in an extremely strong position in terms of our finances, and that is a position which, quite frankly, with the gold price where it's at and our increasing production is only improving as we go forward. So this is a really exciting year, I think, for K92. Our people are very excited at the opportunities there, the exploration people with all the work that they've got ahead of them and the potential to increase expenditure year on year over the next few years and really put a lot of work into increasing our resources outside of Chattancora. So exciting year. Look forward to having another call in about three months time where hopefully we can give equally impressive numbers for the first quarter. Thank you, everyone, for your time today. And, yeah, let's see the gold price go beyond $3,000 and be good for all of us. Thanks very much.

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