Karora Resources Inc. (KRR), following its merger with Westgold, has reported a promising start to the year with record revenue and a positive outlook for 2024. The merger is poised to make Karora the largest unhedged gold producer in Australia, with anticipated cost savings and strong shareholder support.
Despite operational challenges, such as delays at the Beta Hunt mine and weather impacts at Higginsville mines, the company has maintained a robust financial position and expects to meet its full-year guidance.
Key Takeaways
- Karora Resources projects cost savings of up to CAD440 million from the Westgold merger.
- The company anticipates 2024 gold production between 170,000 to 185,000 ounces.
- Q1 2024 revenue hit a record $116 million, a 19% increase year-over-year.
- Adjusted earnings for Q1 2024 reached $13 million, with a significant improvement from the prior quarter.
- Karora holds a strong cash balance of $87 million and expects to maintain production momentum despite operational setbacks.
Company Outlook
- Karora Resources remains on track to achieve its 2024 production guidance.
- The merger with Westgold has been met with strong market and shareholder approval.
- Marketing efforts are ongoing to increase the company's presence in indexes and ETFs.
- Significant gold production is anticipated in the second half of 2024, with resource updates expected in the same period.
Bearish Highlights
- Operational issues at Beta Hunt and Higginsville have led to reduced production and increased costs.
- Extreme weather conditions and low-grade stockpile feed sources have impacted Higginsville's output.
Bullish Highlights
- The merger with Westgold has received a positive market reaction and institutional investor support.
- Strong sales of over 40,000 ounces of gold have been maintained despite production delays.
- The company has a robust cash flow and a healthy balance sheet to support future operations.
Misses
- Short-term delays at Beta Hunt due to power upgrades and network failures.
- Higginsville mines' production was lower than expected due to adverse weather conditions.
Q&A Highlights
- Karora Resources plans to reach wider audiences through continued marketing efforts.
- Access to mineralization is expected by Q3, with meaningful gold production forecasted for the latter half of the year.
- The company aims to produce approximately 400,000 tonnes and 30,000 ounces from Higginsville projects by year-end.
- Gratitude was expressed to teams across Australia and South Africa, and to shareholders for their ongoing support.
Full transcript - None (KRRGF) Q1 2024:
Operator: Good morning, ladies and gentlemen and welcome to the Karora Resources First Quarter 2024 Conference Call. Note that, at this time, all participant lines are in a listen-only mode. Following the presentation, there will be a question-and-answer session [Operator Instructions]. Also note that this call is being recorded on Monday, May 13. 2024. And I would like to turn the conference over to Paul Huet, Chairman and CEO. Please go ahead Sir.
Paul Huet: Thank you, Sylvie. Good morning, everyone. I'd like to welcome you to Karora Resources first quarter 2024 conference call. Please note we will be referencing a slide deck, which is available on the homepage of our website as well through the webcast of this call. Over to Slide Three and Four, cautionary notes; before I begin the presentation, I'd just like to remind you to please review our cautionary statements regarding forward-looking information and non-IFRS measures. These statements can be found in our first quarter MD&A, our news release and in our presentation slides. Over to Slide Five; our highlights on. Today's call with me is Leigh Junk, our Managing Director for Australia. Lee will take us through the operational highlights for the first quarter. Oliver Turner, our Executive Vice President of Corporate Development is also on the call and you will hear from Oliver later in the call, but first I will cover some recent highlights; then review our financial results. First and foremost, let me tell you how excited I am about the merger transaction with Westgold. We announced on April 7. This is really good news for our shareholders. The combination of Carora and West Gold provides ongoing exposure to the strong gold market conditions through a 49.9% interest in the new merged West Gold Carora story, which will be the largest unhedged gold producer in Australia. The merge company offers substantial value to Carora shareholders, unlocking value across our mines and projects, introducing exposure to West Gold's strong operations and includes substantial synergies. These synergies have the potential of reducing up to CAD440 million, in costs for the new company, almost AUD490 million. This merger is a really great example of one-plus-one equals three. When you consider the value creation potential for both Karora and West Gold shareholders, we are excited to bring it across the finish line. To that end, legal and regulatory work is progressing well and we have received very strong support from our shareholder base as we continue to engage with the market ahead of our boat in July. I know both Wayne and I are excited to hit the ground running after the deal closes to unlock all of the value we see in each other's operations. Turning back to Karora's operations after a strong sales performance and costs coming in line to start the year, we remain confident in achieving the full year 2024 guidance we announced during March. As a reminder, our full year 2024 guidance is 170,000 ounces to 185,000 ounces at an all-in sustaining cost between $1,250 and $1,375 an ounce US. Turning over to Slide Six, I will go over some financial highlights. This morning we issued a news release with our 12024 financial results. Our unaudited financial statements and MD&A for the period ended March 31, 2024 have been filed and are available on our website under Karora profile on SEDAR+. Headline financial results for Q1 2024 included record revenue of $116 million, up approximately 19% to Q1 2023 and approximately 14% than the previous quarter. Record revenue was driven by both the strong gold price environment and higher ounces sold. Q1 adjusted earnings were $13 million, or $0.07 per share, a $10 million improvement from the prior quarter. Adjusted EBITDA was $40 million, or $0.23 per share, and cash flow provided by the operating activities was $43 million, or $0.23 per share, up $16 million, or $0.09 per share, from the previous quarter. Our cash balance at the end of Q1 remains very healthy and strong at $87 million, up another $5 million from the prior quarter, while we continue with our growth plan spending at Beta Beta Hunt, placing us in a very strong financial position. With that, I'll now turn the call over to Leigh Junk, who can take you through some of the operating highlights. Over to you, Leigh.
Leigh Junk: Thank you, Paul and hello everyone. Our operating team led by Peter Ganza, continued to deliver a safe and productive operational performance from our Beta Hunt and Higginsville mines and I thank all our team for their hard work and dedication to our safety culture while delivering these results. On Slide Eight, on a consolidated basis, for Q1, as previously announced, we produced 36,147 ounces from 436,000 tonnes milled in an average grade of 2.75 grams per tonne. Consolidated mill recoveries remained strong and consistent at 94%. Consolidated cash operating costs for Q1 were USD1,193 per ounce sold and AISC was USD1,285 per ounce, well within our full year guidance range of USD12.50 to USD13.75 per ounce US. Quarter one, AISC was about USD150 an ounce, or 10% lower than the prior quarter, reflecting higher gold sales and the impact of higher nickel by-product credit of USD2.9 million or USD54 an ounce, compared to USD5 an ounce for the prior quarter. Turning over to Slide Nine, at Beta Hunt, during q one, we mined 271,200 tonnes at an average grade of 3.73 grams per tonne containing 32,485 ounces of gold. This represented a 10% reduction from the first quarter of 2023 ore tonnes mined and a 25% decrease from the prior quarter one tonnes, reflecting short term delays experienced in the stoping schedule power upgrades in the lower section of the mine and a number of local power transmission network failures impacting the ongoing production ramp up at Beta Hunt. Contained gold was 8% lower than the prior quarter, reflecting the planned mining of a higher grade section of Beta Hunt during the quarter. The majority of the mine tons were from the central and southern sections of western Flanks and the scheduled higher grade ore zones from A zone. Overall, though, sales remained very strong for the quarter at over 40,000 ounces. Switching to processing, 271,000 tonnes of Beta Hunt material was milled at an average grade of 3.81 grams per tonne for production of 31,249 ounces of gold. Compared to the prior quarter, higher grades were offset by the lower processed tonnes, resulting in 9% lower gold production compared to the prior quarter. Cash operating costs per ounce sold at Beta Hunt were very strong at us USD869 per ounce in the first quarter of 2024, which compared to USD1,123 the previous quarter. The reduction in cash operating cost per ounce from the previous quarter reflects the impact of the higher grades and higher sales volume in Q1. Turning to nickel, we mined 4,337 tonnes of nickel ore at an estimated grade of 2.5% during the first quarter, compared to 5,253 tonnes of nickel ore at an estimated grade of 2.3% the previous quarter. We're currently developing a drive from our Western Flanks decline across to Fletcher, which is really exciting for Beta Hunt. To date, we have been mining primarily from only two main areas, Western Flanks and A zone, so to access a whole new mineralised zone in addition to those two is significant. We plan to intersect the ore in late June, which will set us up for ore deliveries from Fletcher for the second half of the year and beyond. If you've seen some of the thick high grade sections in our announcement, then you'll see why we are so keen to commence mining there and also provide additional working faces and stoping areas to the mine plan. We are still continuing to drill Fletcher as well. Now looking at Slide 10, production from Higginsville mines totalled 4,898 recovered ounces based on milling 164,700 tonnes at an average grade of one gram per tonne. Production in the first quarter of 2024 was 16% lower than the previous quarter, despite 34% higher tonnes processed, reflecting lower grade compared to the previous quarter as mining was negatively impacted due to extreme wet weather, the laying back of sections of the pioneer pit walls, which required the use of historic low grade stockpile feed sources. All this, plus the other temporary impacts of the higher cost per tonne reported in our call on March 22, including the temporary use of contract crushing and higher costs incurred on setting up the Two Boys underground, resulted in short term higher cash operating costs at Higginsville. The majority of planned ounces at Higginsville are to be mined in the remainder of 2024 as production of both Pioneer and Two Boys ramps up in the second quarter and we'll see higher production and lower costs at both of these mines reach full production. With that, I'll turn the call over to Oliver Turner.
Oliver Turner: Thank you, Leigh and good morning, everyone. Without question, the highlight of the last quarter was our merger announcement with West Gold. The synergies realized, projects accelerated, combined team and tremendous cultural fit, all point in a positive direction for the new West Gold operations across Western Australia once the merger closes in July. In the context of the market, what we are creating via this merger will be one of the largest gold producers in Australia, entirely unhedged in what is the strongest gold price environment we have ever seen. In these types of exciting markets, being a first stop vehicle of choice is even more powerful, and that's exactly what the new Wesco will be, a top tier investment vehicle for larger institutional investors, which neither company currently has access to on their own. Furthermore, this exposure will be available for investors on both the ASX and the TSX, creating a round the clock gold and nickel investment vehicle. A significant benefit of the larger scale is increased index demand. We anticipate strong buying from indexes and ETF's on both the ASX and the TSX dual listings. On the ASX, we expect demand from the ESX 200, and on the TSX we expect demand from the GDX (NYSE:GDX). To date, our marketing of the deal to institutional investors has gone very well, with strong support shown by both sets of shareholders in Australia, Canada, the US and in Europe. We continue to deliver our message to investors with our marketing road show continuing this week. And on the research side, we've also seen strong support from our analyst coverage with tender ratings coming in. Overall, I'm very excited at the prospect of being a shareholder of the combined company in a market for gold producers that is unlike anything we have seen before in our careers. And with that, I'll turn the call back over to Paul.
Paul Huet: Thanks, Oliver. Sylvie, over to you. We're going to turn it over for questions at the moment.
Operator: [Operator instructions] And your first question will be from John Sclodnick at Desjardins. Please go ahead, John.
John Sclodnick: Great. Thanks for taking my question and congrats, guys, obviously on a good quarter in terms of cost, but also obviously the merger being the highlight there, I guess, and on that topic, just curious, kind of the market reaction that you've seen through this marketing with West Gold and I guess a further question on that topic is, have you seen kind of a bit of a differentiated reaction between the North American market and Australian market?
Paul Huet: Yeah. Thanks, John. It's Paul here. To be quite honest, we obviously started marketing immediately, both in North America. We covered all the desks, including yours, as you know. We did all the active shareholders. We got immediate support, as you know, directly from one of our largest shareholders, Eric Sprott, that was very well received. Following that, we did a huge campaign over in Australia that was very well received. The message is being received on both sides of the ocean here very positively. Once people understand what it is we're building, they really, really like it. Many people we are seeing are buying more of it. The reception has been quite strong in this current gold market and we're not seeing a different response. We're seeing quite positive response on both sides. With that, we're doing some follow up here in the next coming days in San Francisco, New York, Toronto, even over in Europe. So quite a bit of additional marketing just to see some of the people we might have missed in the first rounds and to follow up with both Wayne and myself side by side on any other of the clients. But overall, the message on both sides of the ocean has been quite positive, very well received. It's an easy story to get out there and get in front of John. It's not a tough one to get out there and sell. It sells itself.
John Sclodnick: Excellent. No, appreciate that and, yeah, certainly seems like a vehicle perfectly designed for this gold price environment, particularly Aussie dollar gold price environment. That's it for me. Thanks guys.
Operator: [Operator instructions] And your next question will be from Jeremy Hoy at Canaccord Genuity. Please go ahead.
Jeremy Hoy: Hi, good morning, everyone. A couple questions from me. Fletcher, you said you should access mineralization by Q3. Can you provide a bit more color on the progress there and the prospect of us seeing meaningful gold production from the zone this year? And will it be a significant percentage of production in H2?
Paul Huet: Hi Jeremy. It's Paul. Yeah, sorry, I'm going to let Leigh answer that one. Go ahead, Leigh.
Leigh Junk: Sorry, Paul. Good day, Jeremy. Yes, it's going really well. Our drive out to Fletcher is going really well. We should hit it late this current quarter. So that'll give us really the half two to deliver all that ore from Fletcher. We're planning some more driving and hopefully do some stope towards the end of the year in Q4. So it'll be pretty meaningful given that if you've seen some of the grades out of there, hopefully that gives our grade a bit of a kick.
Jeremy Hoy: Yeah, definitely higher grades, based on the drill results. On the resource, do you guys have an update on the timing for it? Is it still looking at the back half of this year?
Paul Huet: Yeah, Jeremy, we're still drilling there now. So we're drilling at the same time as we're heading out there. So it'll just be when we cut that off, because we're continuously getting draw results back, but it'll be in the second half of the year.
Jeremy Hoy: Okay, great. And finally from me, what's the outlook for Higginsville production from Pioneer open pit and Two Boys over the balance of the year?
Paul Huet: Sure. Between the two, we'll probably produce about 400,000 tonnes, give or take, from both of those projects, and roughly around 30,000 ounces from here towards the end of the year.
Jeremy Hoy: Okay, that's really helpful, thanks. That's it for me.
Operator: Thank you. And at this time, I would like to turn the call back over to Mr. Huet for any closing remarks.
Paul Huet: Thanks Sylvie. I know everyone's quite busy. Before they sign off, I just want to thank everyone for joining our call today. I just wanted a quick shout out to our team in Australia, who've been working very, very hard around the clock during this time, and say thank you to our entire team in South Africa, our shareholders and all the analysts who've been covering us. So thank you to everyone, we appreciate all your support and our shareholders, and we'll be seeing you soon and have a great day. All the best.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you please disconnect your lines. 0
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