K92 Mining Inc. (KNTNF) has announced its financial results for the first quarter of 2024, showcasing a significant increase in revenue and successful gold production that slightly exceeded budget expectations. The company reported quarterly revenue of $59.8 million, a 48% rise from the previous year, attributed to the production of 27,462 ounces of gold equivalent at its Kainantu Gold Mine.
K92 Mining also made progress on its expansion plans, with Stage 3 commissioning slated for late April 2025 and Stage 4 targeted for the second half of 2026. Despite a temporary suspension of underground operations due to a non-industrial incident in March, the company resumed operations and is on track to meet its mining target for the year.
The earnings call also touched on the company's exploration activities, infrastructure upgrades, and the status of a loan agreement with Trafigura.
Key Takeaways
- K92 Mining reported a 48% increase in revenue year-over-year, amounting to $59.8 million for Q1 2024.
- The Kainantu Gold Mine produced 27,462 ounces of gold equivalent, slightly over the budget.
- The company is advancing with its expansion plans, with Stage 3 and Stage 4 expansions on schedule.
- Safety enhancements are ongoing, including the near completion of the Proximity Detection and Collision Avoidance System.
- Exploration efforts are intensifying, with significant results from drilling activities and potential for bulk mining identified.
- The company aims to mine 1.5-1.6 million tonnes of total material in 2024.
- A loan and off-take agreement with Trafigura is in the final stages of approval.
- Elevated all-in sustaining costs are expected in the upcoming quarters due to catch-up efforts.
Company Outlook
- Stage 3 and Stage 4 expansions are progressing, with the former expected to commence in late April 2025 and the latter in the second half of 2026.
- The company is focused on meeting its mining target of 1.5-1.6 million tonnes for the year.
- Construction of the process plant is advancing, with GR Engineering Services (GRES) actively working on the site.
Bearish Highlights
- The company experienced a temporary suspension of underground operations due to a non-industrial incident.
- Elevated all-in sustaining costs are anticipated as the company recovers from the operational downtime in Q1.
Bullish Highlights
- The revenue increase and gold production figures indicate strong operational performance.
- Expansion plans are on track, with the potential to exceed ore production targets using the new plant.
- Exploration activities have yielded positive results, enhancing the company's growth prospects.
Misses
- The lost time injury frequency rate increased in 2023, prompting the company to implement additional safety measures.
Q&A Highlights
- The company is addressing critical path issues to stay on schedule with construction and commissioning.
- Exploration at Arakompa is showing promise, with the possibility of developing one or two veins with good continuity.
- There is optimism about running Arakompa and the existing plant simultaneously due to the high-grade potential.
K92 Mining remains committed to enhancing safety, increasing productivity, and expanding its operations while managing the challenges of increased costs and operational interruptions. The company's focus on exploration and infrastructure upgrades, along with the anticipated completion of expansion stages, positions it for sustained growth in the coming years.
InvestingPro Insights
K92 Mining Inc. (KNTNF) has demonstrated remarkable financial and operational performance in the first quarter of 2024, with revenue and gold production figures surpassing expectations. To further understand the company's financial health and investment potential, let's delve into some key metrics and insights from InvestingPro.
InvestingPro Data highlights that KNTNF holds a market capitalization of $1.34 billion USD, reflective of investor confidence and the company's market presence. The P/E ratio, a measure of the company's current share price relative to its per-share earnings, stands at 39.78 on an adjusted basis for the last twelve months as of Q4 2023, indicating that investors are willing to pay a premium for potential growth. Additionally, the company's gross profit margin is a robust 44.38%, showcasing efficient operations and strong control over costs.
In terms of performance, KNTNF has seen a substantial 6-month price total return of 63.85%, signaling strong market momentum and investor optimism. This is further supported by the fact that the stock is trading near its 52-week high, at 99.32% of the peak value.
An InvestingPro Tip worth noting is that KNTNF holds more cash than debt on its balance sheet, providing financial flexibility and a solid foundation for continued growth and expansion. Moreover, analysts have revised their earnings upwards for the upcoming period, reflecting confidence in the company's ability to generate increased profits.
For investors seeking a deeper analysis and more InvestingPro Tips, there are 12 additional tips listed on the InvestingPro platform for KNTNF, which can be accessed at https://www.investing.com/pro/KNTNF. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking valuable insights that can inform investment decisions.
The data and insights provided by InvestingPro paint a promising picture for K92 Mining Inc., aligning with the company's positive outlook and strategic expansion plans as outlined in the article.
Full transcript - K92 Mining Inc OTC (KNTNF) Q1 2024:
Operator: Thank you for standing by. This is the conference operator. Welcome to the K92 Mining’s 2024 First Quarter Financial Results Conference Call. 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 question. [Operator Instructions] I would now like to turn the conference over to David Medilek, President and CEO. Please go ahead.
David Medilek: Thank you, operator, and thanks everyone for attending K92 Mining's 2024 first 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 Blanchet, Chief Financial Officer. I would also like to remind everyone that after the remarks from management, the call will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes and risk disclosure in our MD&A and Slide 2 of the webcast presentation. Also, 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.
John Lewins: Well, thank you, Dave, and welcome everyone. As always, we’ll begin with safety, K92's number one priority. K92 has historically operated with one of the best safety records in PNG, as well as the broader Australasian region as shown in this chart. And as we stated in our previous conference call, we take the increased lost time injury frequency rate we achieved in 2023 very seriously. Multiple actions have been taken. Two independent safety audits have completed. The first in the second half of 2023 and the second in April of this year. While overall, our systems were found to be comparable with other operations in Australia and the Asia-Pacific region, opportunities to improve safety were identified and many improvements have already been realized. Additional safety technologies have been progressively introduced such as in-cap monitoring and the implementation of our Proximity Detection and Collision Avoidance System, which is nearly complete. Further enhancements and systems beyond this are also planned. And then culturally, there are multiple positive leading indicators including a significant increase in job safety assessments for several consecutive quarters. As part of our expansion process, management and supervisory capabilities have been enhanced and expanded, including to provide a major focus on safety and training. In Q1, there were no lost time injuries and I'm pleased to highlight that this is now the third consecutive lost time injury-free quarter. I'd like to reiterate that K92 relentlessly pursues our goal of achieving zero harm among our workforce. So now I’d like to provide an update on the non-industrial incident that occurred on the mining lease on March the 10th and which resulted in a deceased employee, as well as the issuance of a Form 29 by the Mineral Resources Authority or MRA. I know that the Form 29 required a temporary suspension of underground activities on March the 13th, and it was initially incorrectly interpreted as a mine accident. On April the 8th, we announced that the MRA had vacated the Form 29 through a letter and the operations were resuming imminently. This letter followed a presentation that was delivered by The Independent Safety Auditor to the MRA, which highlighted that our underground safety management plan was good, conformed to criteria in ISO 45001 and had been implemented. The safety auditor also noted that no substantive document process or systems were found and that the underground safety management plan was comparable to other operations in Australia and Asia. Since restarting operations ramped up in April and have now returned to normal and we're pleased with the focus and motivation of our workforce. In terms of the Proximity Detection and Collision Avoidance System, installation is nearing completion, with as noted in the prior slide. Lastly, in late April, the colonel’s report confirmed that the incident is non-industrial. It is deemed not to be a mine accident and is a jurisdiction of the Royal Papua New Guinea Constabulary or the police. On the ESG highlights, K92 is extremely proud of its positive impacts on women's empowerment. The five female graduates shown in this slide are within a larger group of outstanding female leaders and future leaders in our company. They work in a range of roles within the company, including but not limited to, mining engineering, sustainable agriculture and livelihoods, finance and community affairs. Some of the female graduates are also previous scholarship recipients including the Inaugural Women in Mining Scholarship. Our Women’s Empowerment $programs are wide ranging, focusing on education and healthcare training and awareness, business development, developing our workforce, and partnering with academia and are designed to deliver long-term and diverse positive impacts. K92 is extremely proud of the positive impact that we're having in Papua New Guinea and we look forward to announcing our latest sustainability report in the next couple of months. Now moving on to operational performance. During the quarter, Kainantu Gold Mine slightly exceeded budget with 27,462 ounces gold equivalent produced even with the temporary suspension of underground operation for the final 22 days of the quarter due to that non-industrial incident. During the quarter, a total of 130,632 tonnes were processed at a head grade of 7.2 grams per ton gold equivalent and cash costs $934 an ounce, all-in sustaining costs, 1,366 an ounce. And as annotated on the chart, all-in sustaining costs have been elevated for the past few quarters as the company continues to make considerable investment in that Stage 3 expansion, particularly in 2024 with costs then expected to decline considerably after delivering Stage 3 expansion next year. I think it's important to highlight that the non-industrial incident had a moderate impact on our Q1 production of about 3,000 ounces to 4,000 ounces and we expect a moderate impact in Q2 as previously disclosed. Q1 was on track prior to the incident to be our best first quarter on record and there is certainly a lot of positives to build on going forward. As I outlined in our operational guidance earlier in the year, the second half of the year is expected to be our strongest. So we reiterate our 2024 guidance. In terms of key operational quarterly physicals, K92 has demonstrated the ability to sequentially expand the operation for several years with physicals in Q1 clearly impacted by the temporary suspension of underground operations for the majority of March, as well as the completion of the twin incline. In Q1, a major positive in terms of operational physicals was realized with the process plant delivering multiple records earlier in the quarter. A new monthly throughput record was achieved in January, averaging 1,843 tonnes per day or 35% greater than the Stage 2A design throughput. A new weekly throughput record was achieved in January, averaging 2,149 tonnes per day, which is 50% greater than the Stage 2A design. And finally, a new daily record throughput was achieved on the 21st of January of 2,389 tonnes processed, 74% greater than that Stage 2A design. So the process plant has clearly demonstrated that with the tonnes in front of it from the mine, it is extremely capable and provides significant optionality going forward. I think the records also highlight the potential of the Stage 3 process plant, which has used the same design parameters as the Stage 2A process plant and is therefore potentially capable of significantly greater throughput than the 1.2 million tonne per annum nameplate design. With that, I'll now turn over to our Chief Financial Officer, Justin Blanchet to discuss our financial results for the first quarter.
Justin Blanchet: Thank you, John. Hello everyone. During the first quarter 2024, we had quarterly revenue of $59.8 million, a 48% increase from prior year. We sold 27,996 gold ounces, at an average selling price of $2016, compared to 17,602 ounces at an average selling price of $1,807 in the prior year. As at March 31st 2024, there was 1,677 gold ounces in inventory, including both concentrate and dory, a decrease of 3,608 gold ounces, when compared to December 31st due to timing of sales. During the first quarter 2024, cost of sales was $40.9 million, compared to $23.7 million in the prior year or $32.9 million, compared to $16.7 million when excluding non-cash items. Cost of sales is higher as expenditures incurred during the temporary suspension or expense directly to cost of sales. In addition, there was a reduction of costs capitalized as development. During the first quarter 2024, cash flow from operating activities before changes in working capital was $20 million, compared to $16.5 million in the prior year. As at March 31st 2024, we had $73.4 million in cash, cash equivalents, and short-term treasury bills, while spending $18.1 million in expansion capital in the quarter. We had a working capital balance of $89.2 million and had no debt on the balance sheet. As John mentioned, during the first quarter, the Kainantu Gold operations produced a 24,389 ounces of gold, 1,443,300 pounds of copper and 35,650 ounces of silver or 27,462 ounces of gold equivalent. We sold 27,996 ounces of gold, 1,582,668 pounds of copper and 38,812 ounces of silver. We incurred a cash cost of $934 and an all-in sustaining cost of $1,366 per ounce of gold, which was significantly below our selling price of $2016 per ounce. Our first quarter cash cost per ounce of gold increased to $934 from $758 in 2023. The increase was due to the higher cost of sales mentioned earlier. It is important to note that we will see downward pressure on costs via economies of scale as operations ramp up and the Stage 3 expansion is complete. I will now turn the call back to John to continue with the rest of the presentation.
John Lewins: Well, thank you, Justin. For the exploration and growth section, we begin with an update on the Stage 3 and 4 expansion, which are designed to fundamentally transform K92 into a Tier-1 mid-tier producer through sequentially increasing production to 300,000 ounces per annum and then to 470,000 ounces per annum. Importantly, this transformation is happening near term with the commissioning of the Stage 3 process plant planned for late April 2025. I know this is a slight extension from our original timing of late March 2025 due to a longer and significantly wetter rainy season and also some impacts from the Form 29 suspension. Now that delayed the completion of the site earthworks and subsequent handover to the contractor. Fortunately, the impact occurred early in the mobilization process resulting in limited variation to costs. The delivery of Stage 4 expansion remains on track targeting second half 2026. As at the end of April, 52% of Stage 3, 4 growth capital has either been spent or committed. And as a reminder, the process plant is the largest growth capital package and that was awarded in July 2023 on a lump sum fixed price basis significantly de-risking the project for K92. We are pleased to report that GR Engineering Services or GRES is now fully mobilized on site. So this video clip begins with a design layout of the process plant, which as outlined in the integrated development plan is a conventional single-stage crush SAG ball mill combination followed by gravity and flotation recovery producing a copper gold concentrate and dory. The recovery method is the same proven method as we used in the Stage 2A expansion with the new plant having a much more optimized design and an enhanced process control, which includes real-time product analysis. We now pivot to show recent drawn footage of the construction site starting with the primary crusher where we installed pilings prior to handing over the site to GRES. Now moving towards the surge pain and reclaims plus stockpile area, which is not on the critical path, so we're seeing limited work today as followed by the SAG and ball mill area, which as you can see GRES is already well underway with work on the mill footings and foundation. And then towards the wet end of the process plan where you can see GRES is already underway completed work on the concentrate and tailing thickness footings and foundations. Over to the right, is the long lead and material lay down area. I think it's important to highlight there's been a surplus area for the construction materials and long lead items which de-risks the project in terms of inventory management. Then in the far right are the offices for GRES and the various subcontractors, which are now operational. And then lastly, as we continue along, these are the designated areas for the reagents water services and concentrate filtration and storage head. Again, this is not on the critical path. So limited work has been completed in this area to-date. I think it's fair to say we're excited with the increased construction activity, which is gaining significant momentum and we're looking forward to providing further updates on the process plant construction in due course. On the paste fill plant, front-end engineering and design is almost complete and as shown on this slide, we've got the latest designs. The image on the left is our tailings, filtration plant design, utilizing plates and frame pressure filters. The image on the top right is our surface storage system near the portal area for the filter cake and binder before it's transported underground to the paste plant itself was the design shown in the bottom right image here. Long lead item ordering is progressing the pumps, which are the longest lead items were ordered in Q1 and the remaining long lead items are to be ordered shortly. Work towards award of the construction contract is well advanced. Beyond the Stage 3 and 4 expansion surface works, multiple near term major infrastructure upgrades that are fundamentally transforming the mine productivity are being put in place with the twin incline already effectively completed. As part of the expansion, we're also putting in place a series of ore and waste passes to efficiently leverage gravity to connect the main mine to the highly productive twin incline infrastructure. As shown in the images, the raised ball rig and associated power pack is underground with electrical commissioning to begin imminently followed by the commencement of boring operations. The first race will be to upgrade our ventilation to the main mine and that will be followed by waste and ore passes. These various infrastructure upgrades, combined with a triplet of the mining fronts in 2024 as shown in this slide are set to fundamentally transform the mine and business into a Tier 1 mid-tier producer near term. Now in terms of exploration, we are drilling Kora, Kora South, Judd, Judd South vein systems, Arakompa vein system and of course A1 porphyry. On May the 6th, K92 reported a total of 140 holes at Kora, Kora South, and Judd, Judd South, which we believe continue to demonstrate that this is a world-class deposit with significant upside potential. I think for the results at Kora, there are three key takeaways. Firstly, it’s a discovery of a new potential dilatant zone to the south beyond the existing resource envelope, highlighted by whole KUDD0053 intersecting 78.5 meters at 27.3 gram per tonne gold. Second is the expansion and upgrade of a large zone of high-grade within the resource as demarcated by the larger lips with the dashed black line in multiple areas drilling results where higher grade than the resource with highlights including KMDD0657 recording 6 meters at 47.27 gram per tonne gold equivalent in K2, KMDD0662, 9 meters at 40.35 grams per tonne gold equivalent also in K2 and then KMDD0634 recording 12.1 meters at 18.9 grams per tonne gold equivalent in K1. These results, I think are particularly important as you're immediately above the main workings setting ourselves up well for the Stage 3 expansion over the near-to-medium term in that area. And then thirdly, is a significant high-grade mineralization intersected from step out drilling to the south from the underground drill drives shown by the smaller lips located on the left including KMDD0652 with 9.3 meters at 15.3 gram per tonne gold equivalent and KMDD0654A recording 17.5 meters at 23.79 gram per tonne gold equivalent in the K2 vein. These holes continue to support our view that Kora, Kora South’s best grade is at depth. I think it's important to highlight that exploration to the south continues to intersect high-grade copper as annotated in the K2 long section with multiple significant stepper intersections approaching 4% copper, in addition to recording high gold. These intersections have extended the high-grade copper zone further to the south and continued to confirm our thesis for high and potentially increasing copper grades as we draw further to the south towards the A1 porphyry. Now Judd also delivered some impressive drilling results with two key takeaways. Firstly, is the expansion vertically of a high-grade zone, the J1 vein as shown by the large dashed black line ellipse and very importantly, at significantly higher grades in the resource with multiple plus one ounce per tonne intersections including JDD0025 with 4.1 meters at 69 grams per tonne gold equivalent, JDD0231 with 3.67 meters at 41.05 gram per tonne gold equivalent, and JDD0239 with 2.7 meters at 44.48 gram per tonne gold equivalent. By Kora, this is particularly important as it's immediately above the main mine workings. And so again it's setting ourselves up well for that Stage 3 expansion into that area. Second is the intersection of significant mineralization to the north from a 300 meter stepper in an area which effectively has no drilling, highlighted by KODD0055 recording 9.85 meters at 7.58 gram per tonne gold equivalent. In late February, K92 announced the first drilling results at Arakompa for 32 years. Arakompa as shown on the map to the right is located approximately four and a half kilometers from the process plant, so that makes it closer than Kora and Judd. Historically, Arakompa has recorded limited drilling with a total of only 18 largely shallow holes for a total of 1.8 kilometers drilled, so, averaging just 100 meters depth. Our initial drilling results reporting two holes were exceptional. The second hole recorded four high-grade loads including 7.2 meters at 24.8 gram per tonne gold equivalent, 5.7 meters at 9.9 grams per tonne gold equivalent, 5.3 meters at 6.1 grams per tonne gold equivalent, and 3.6 meters at 3.4 gram per tonne gold equivalent. These intersections are within a bulk intersection of 219.8 meters at 1.59 grams per tonne gold equivalent and within that, the higher-grade core of 149.4 meters at 2.12 gram per tonne gold equivalent. And as shown in the cross-section, mineralization started near surface and the entire width of that corridor is still to be drilled. Importantly, the target size is also very large, comprising a 150 meter to 225 meter wide corridor of mineralization containing these high-grade veins with a non-mineralization strike at 1.7 kilometers and a non-vertical depth of 500 meters as shown in the plan view in long section here. And as you can see this system is opening multiple directions. We're pleased to report that exploration at Arakompa is accelerating. From the recent drone footage, we began at the Arakompa exploration camp looking towards the Markham Valley in the distance. The exploration camp, as you can see, is a significant facility since we believe that we'll be drilling here for an extended period. As the drawn footage rotates, the Kainantu Gold Mine Accommodation Facility or Kumian Camp, which I think some analysts on the call will be familiar with, can be seen in the distance with the process plant just hidden from view. And that's located as I mentioned 4.5 kilometers from Arakompa. We now pivot to footage of the exploration drill is operating. Drilling at Arakompa commenced with a single rig and after the exceptional initial drilling results, we've increased the number of rigs to two. We are shortly adding a third rig with its drill pad construction almost complete. Conditions for drilling are good. The rock is competent and penetration rates and productivity are better than Kora and Judd. From the footage, you will also notice that topography towards the Markham Valley is relatively gentle with a positive attribute for constructing road access and hopefully the eventual transportation of mine material downhill to process plant. Now here's some of the fresh drill core that our drone crew filmed as it was coming out. While the core footage is not from one of the high-grade loads, you'll notice that the rock is still well mineralized. An important feature of Arakompa is the presence of significant background gold copper mineralization between the high-grade loads. This indicates as we mentioned the potential for bulk mining from those initial results that intersection of almost 220 meters at 1.59 gram per tonne gold equivalent within that that higher grade 149 meters at 2.12 grams gold equivalent. The rock, as demonstrated here is competent and the mineralization is certainly easy to visually distinguish. For the high-grade loads the mineralization has similarities to Kora and Judd. We look forward to providing an update on our exploration at Arakompa in the near term. And with that, operator, we'd like to commence the Q&A session.
Operator: [Operator Instructions] Our first question comes from Ralph Profiti with Eight Capital. Please go ahead.
Ralph Profiti: Thanks operator. John, thanks for the presentation and the videos. So firstly, as it pertains to developments and total material mined, just wondering if your - the original target was 1.6 million tonnes of total material mined for ’24, just wondering if you're kind of back to that run rate at least? And sort of whether or not that target is still good for 2024?
John Lewins: Okay. Thanks for that Ralph. It took us until basically end of April to get ourselves back up to our budgeted run rate. We obviously have dropped some of our meters of development during that suspension of operations. In terms of total tonnes mined for this year, we're still looking at that 1.5 million to 1.6 million tonnes for the year.
Ralph Profiti: Great. Great. Yeah, thanks. A question on the dilatant zones and it's still early days and we've got some indication on the May 6th press release on where you're going with that. I'm just wondering even though it's still early days, is it the view that from a dimension of these zones that both vertically and a long strike, the same dimensions as the veins themselves or are we going great long strikes or perhaps even greater depth extent dilatants versus veins?
John Lewins: I think, I know what you're asking here. But Let me answer and if I didn't answer it, then just add to it. At this point we think - and as you say it, we've got limited information so far. It appears that they have more vertical extent than horizontal extent. So less a long strike more down dip. It is still early days. But it's - it appears that you have multiple dilatant zones. They do, it certainly we've seen at least one instance where a dilatant zone in Judd is also in that same northern. We're also seeing a dilatant zone in Kora, which may suggest obviously there is some sort of cross-cutting structure that is contributing to that latency. But again, it's still it's still early days and we're obviously targeting some of those areas with additional drilling, so that we can actually fill out and understand what we've got, because clearly they've got a very significant potential in terms of ounces within the resource and also areas, which can provide a lot of tonnes at very, very good grades for mining and will require some - potentially some different design in terms of how we mine them.
Ralph Profiti: Yes. Okay. Yes, that's what I was looking for. Thank you, John.
Operator: The next question comes from Alex Terentiew with Renton Financial. Please go ahead.
Alex Terentiew: Hey guys. Good morning. Couple questions. First one on the Trafigura loan, I know that it's been in work for a while. Any update there you can tell us about I mean, obviously, $73 million in cash in the balance sheet now. So there's no need to use that SIM, but I am just wondering any insights on the progress there would be appreciated.
John Lewins: Well, thanks Alex. Okay, so, the Trafi loan is, as I think you're aware of as two elements one is the loan itself, the second is the new off-take. And the new off-take provides approximately an extra three percentage points of payability. The system in PNG is that the mine has a gold export license it has it for life of mine and that is issued by the Central Bank. The Central Bank then subsequently approves any off-takes. So we have approval for the current Trafigura loan and we have approval for the current ABC dory off-take. Changes any require Central Bank approval again. And obviously that's to do things like stop transfer pricing for instance. So they’ll review the contract. We've received the draft letter of approval for comment, which we gave. And so now we're waiting the final letter of approval for the off-take and then obviously that then allows the loan. So, it's just a process with the Central Bank, same as the Reserve Bank or whatever and they are a quasi independent government entity along the same lines as you’d see in Australia, Canada.
Alex Terentiew: Okay. Good. Well, it sounds it's making progress then. Okay a second question I have is then, Q1 obviously, you guys had a bit of downtime there, but despite processing a bunch of stockpile, the grade was still pretty solid. I got to see better than expected. Any color you can give on grades for the rest of this year or kind of what you're seeing now? Are they in line with plan or a little bit better?
John Lewins: Look, I think it would be fair to say that first quarter grade was better than budget. And we're not sort of saying that that will continue for the balance of the year. So, we are - we'll obviously stick with our budget in terms of what we're going to do - be doing et cetera, et cetera for the balance of the year. I think positive is you got right now is it we do actually have some stock pile. I think we've already developed about 5,000 tonnes of stockpile. So we do have some stock pile there. We don't see ourselves running with a high stock pile until probably the fourth quarter when our mining race starts to accelerate and we start developing stockpile for the commissioning of the Stage 3 plant. We are certainly starting to see more benefit from other work that we put into open the mine up. We have got certainly more flexibility than we had 12 months ago. And so that does give you an ability to get - maintain your grades and offset any lower grades soaps that are part of the plan to combine them with higher grades and maintain a more constant grade and that obviously helps the plant as well in terms of recovery in operations. And we've - I think we're certainly seeing in this quarter for instance that our grades right now are running fairly much on budget and our recoveries right now are marginally above budget.
Alex Terentiew: Okay. Great. Just one more, just if I may? Just curious in your comments there kind of lead into this question, maybe think about something here. With the Phase 3, 4 ramp up schedule, you're targeting a melt commissioning in late April, but what's underground mining, I mean, what's your target to kind of get to the 1.2 million tonne per annum rate? I know, obviously, it does normally takes some time, but then I'm just also curious given the success you guys had been having, you already have the 500,000 or whatever it's 600,000 tonne per year mill at the moment running, are you looking at opportunities to kind of keep that one going? Or is just kind of shut it down once the other one starts up and then restart it once you have the capacity? And just looking to get your latest on the ramp up schedule and potential to keep tonnes even higher?
John Lewins: So, I think from a mining perspective, you're looking towards the end of the third quarter next year to hit you 1.2 million tonnes per annum ore. So, the idea is, you built up a stockpile and you start commissioning in the second quarter, you continue that into the third quarter, while your mining is still building up, you've built that stockpile to help with that commissioning. I think at this point, it's very much the view that we would shut the existing plant that and as you say it's 600,000 tonne per annum capacity. And in fact, if you look at the peak throughput, we've achieved on a daily basis, it's over 800,000 tonnes per annum and on a weekly basis, it's like 750,000 tonnes. So, the throughput of the mill isn't interesting opportunity almost if you like in as much as the design parameters that we've used for the new plant, the same is for the old plant. So those design parameters said that the old plant could do 500,000 tons per annum is finally 600,000 tonnes per annum and it can do more. The design parameters say that the new plant can do 1.2 million tons per annum. Now, as you know, with a plant, the main constraint your crushing milling capacity is your combination capacity if you like. The existing plant has an 875 kilowatt mill and it's got a bit over 300 kilowatts of crushing capacity, 40 kilowatts of crushing capacity. So you've got about. 1.3 megawatts of crushing milling capacity and let's be conservative in saying and say you're doing 600,000 tonnes per annum. The new plant has two of 1.85 megawatt mills, 3.7 megawatts and about another 400 in the crusher. So you've got a bit over four megawatts, three times the power. And right now, we're saying it's going to do twice the tonnage. So one of the things that we've done with GRES is that we’ve redesigned the back-end, so that we can add additional flotation capacity very easily and the idea there is that, with the debottlenecking and with the combination capacity that we have, we believe will get significantly better than 1.2 and that certainly initially the view of GRES, as well. So, right now, we have an integrated development plan that says, get to 1.2 and that's - as I said around in the third quarter towards the end of the third quarter next year and then continue to expand underground so that you can get back - so you can get up to a 1.7 million tonne per annum towards the end of ’26. But - and then restart the existing process plan. And so you do a step change if you like from the 1.2 to going up to 1.7 or potentially 1.8, we think it's more likely that you are going to be debottlenecking the existing plant and expanding what you can get through there. Now that doesn't mean you're going to get to 1.8 and then in the existing plant. So there may be a step at some point, but you can see that we're starting to look at what is the potential for this new plant and certainly, we've we have a view based on what we're seeing in the existing plant that you're going to get significantly more than 1.2 million tonnes per annum through it. And so, you'll be coming back to how can you ramp up your underground? And again, things like these dilatants zones become an important part of that as does potentially things like Arakompa as well.
Alex Terentiew: That sounds like a lot of good work ahead. Thank you.
John Lewins: Thanks Alex.
Operator: The next question comes from Stephen Soock with Stifel. Please go ahead.
Stephen Soock: Hi guys. Congrats on the quarter. Just two quick ones for me here. I guess, just on critical path with the plants slipping a little bit and the underground obviously shut down for a few weeks. Just wondering what kind of the critical path items are here. And then, a second one for me, do you expect to see kind of an elevated ASIC through the next three quarters to try and make up some of that ground that was lost in Q1. Thanks.
John Lewins: Thanks, Steve. In terms of critical path, the critical path remains the plant. Obviously we got all the long lead items and what have you? And we will obviously be looking at whether there is potential to bring some of those critical path issues in the construction and what have you? Back a bit, that improve what we've given now and we're working with GRES on that. And as you'd expect within their contract they've got a bonus for finishing early and a penalty for finishing late subject to the usual things of extensions of time where there are circumstances and they’ve obviously have been in this case. The other critical path is, in your paste fill and the paste fill is commissioning in the third quarter, you absolutely want to have your process plant commissioned and stable before you start trying to commission a paste fill plant. Although unlike many paste fill plants because we're doing a filtration to produce a cake and then transporting that by truck up to the mine area and then actually making our page to underground, there is more of the decouple from the plant to the paste fill plant and that's something one of the advantages of it. So paste fill, the third quarter for paste fill is obviously important in terms of that ramp up of underground. So, that's a key area for ramping up and maintaining that 1.2 million tonnes per annum and then building on it in the underground. In terms of costs, yeah, I would certainly expect that we'll see finally elevated all-in sustaining costs in comparison – certainly in comparison with what we've done in the first quarter as we do some of that catch up as you mentioned.
Stephen Soock: Perfect. Great. Thanks so much. That's it for me. I'll open the line to anyone else.
Stephen Soock: Thanks, Steve.
Operator: The next question comes from Andrew Mikitchook with BMO Capital Markets. Please go ahead.
Andrew Mikitchook: Hey John. Congrats on navigating a challenging quarter I think remarkably well. A lot of great questions have been asked, just two short ones. I just want to come back to this dilatants zone, should we - maybe if you could just offer some sort of context as to where the areas where these dilatants structures have been intercepted lie in comparison to the existing mine plan is? Like is that already either inside the mine plan? And the mine plan has to be adjusted for these different thicknesses? Or is it essentially right next to it? Like what is the actual logistics and timing and impact here?
John Lewins: Okay, so, certainly, for instance, the most recent dilatant zone that we've indicated is not in the resource area. So it obviously won't be in the mine plan. The current mine plan, which is the existing - which is based on the existing integrated development plan that was – that forms the basis of a Stage 3 and Stage 4 development that did not have the dilatant zone because we wouldn’t identified at that point in time. They have been identified as part of the updated resource that was put out late last year. So that's when we move from the 4.09 million ounces to I think the 7.1 million ounces of ore resource, 2.3 I think it was milling in a machine dedicated and the balance being inferred. We are updating that integrated development plan the 43101, which will have the same as we had in the past. So it will have the Stage 3 DFS, Stage 4 PA to take into account the expanded resource. And so the mine plan there will certainly have the dilatant zone that we had identified as part of the resource update in the mine plan. But it would not have the latest one, because it's not in the current resource.
Andrew Mikitchook: Okay. Just a quick financial question. The financial statements have a note disclosing the collars. What level of flexibility do you guys have to reschedule delay, adjust delivery on those obligations?
John Lewins: Okay. Justin, do you want to answer that one?
Justin Blanchet: Sure. Thanks, John. Excuse me. The financial collars are just based on the QP hedging, so for the three months period. And they are fixed - they are required to pay two months after settlement.
Andrew Mikitchook: Okay, I guess, that's clear. That's all I've got. I'll hand the microphone to the next speaker.
John Lewins: Thanks Andrew.
Operator: [Operator Instructions] The next question comes from Michael Gray with Agentis Capital. Please go ahead.
Michael Gray: Good morning, John, Dave, Justin. Great to see the no LTIs the last three quarters. Great on the safety performance. Appreciate the answers, the detail and the answers especially on the design of the processing plant and the potential going forward in terms of expansion capacity. My question, just one question on Arakompa, the scope of the program. Can you just speak to the philosophy on whether you're going to really with the three Jewel's sketch in the size of the system both the high-grade and the bulk minable potential or you're going to systematically step away and build out resources?
John Lewins: Yeah, Arakompa is a bit of a moving piece. So we - as we've indicated there we started off with a single rig. We're currently running two rigs. And we're preparing pads so that we can actually run three rigs for the balance of 2024. There were 18 holes drilled there previously I think over a strike length of about six, seven hundred meters. 18 holes, 1.8 kilometers of drilling. So the average hole was only 100 meters deep. And as you would have seen from what we are what we're saying, we're looking at a corridor, which is around 150 meters to 225 meters wide and around we've seen a surface that it goes for up to 1.7 kilometers. So, clearly, the work that's been done in the past has not covered even the entire corridor and in fact I think, today we haven’t drilled anything that's gone through the entire corridor. So, it is still early days and in terms of understanding exactly what the potential of Arakompa is. Clearly, there's analogies with Kora, Judd. If you look at the overall width there and the fact that, while we have a J1, we've also got a J2, J3, J4, J5 don't have the same continuity as J1. But we are seeing perhaps here is where J2 comes in and has good continuity or better continuity and we certainly think that there's probably one or two veins at Arakompa that have the continuity and that's what's been shown in the past and maybe the other ones are coming in and going. But it's still really early days yet. We initially, certainly, had envisaged that it was very much a Kora style mineralization and that we were targeting a high-grade vein, because that's what the previous work have sort of indicated. We think potentially the previous work may while it's got a continuity and showing a vein, they may not necessarily have drilled the same vein at each time that they've done it. I don't think they’ve, we still don't know. So, it's still very much developing in our own mines. We are looking at an initial resource. We’d initially thought towards the end of the year. We will probably be into New Year looking to get an initial resource at that point which will then help us determine on how we want to take that forward because certainly the initial idea was very much a Kora style development. And the fact that it's on top of the hill. We've got over 500 meters of vertical extent and potentially more. And the bottom of that hill is around that 800, 700 RL, similar to what we are seeing at Kora. And so, the idea of replicating the going into the side of a mountain and up on a high-grade system was obviously an attractive model given the proximity to the plant, as well, which is actually closer to the plant than Judd and Kora and then, in fact it's an easier run. It’s very gentle run in there. There's no major river to cross et cetera, et cetera. The bulk mining of course potentially changes that quite dramatically in terms of just the volume that that you'd be and the fact that you'd have to build a brand new plant and a big one. High-grades, as I said, we've got this thing where the new plant certainly we believe it's going to do significantly more than 1.2. And does that give you the potential to have the existing plant sitting there waiting for something like Arakompa to run it and being - be able to run both of those things at the same time. Early days and we're sort of painting pictures right now.
Michael Gray: Yeah.
John Lewins: And perhaps sometimes we run ahead of ourselves, because this whole region just seems to give and give.
Michael Gray: Sounds like it's going to be dynamic. I appreciate the background and very exciting. Thank you.
John Lewins: Thanks, Mike.
Operator: This concludes the question and answer session and today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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