viewKarora Resources Inc.

Karora Resources is now a "top tier" junior gold producer in Western Australia after completing acquisitions and disposals


The acquisition of the Spargos Reward high-grade gold project was closed on August 7, 2020, and the group intends to fast track into its growing production pipeline with the goal of beginning to generate cash flow from the project in 2021


Quick facts: Karora Resources Inc.

Price: 2.9 CAD

Market: TSX
Market Cap: $421.44 m
  • Made transformational Higginsville acquisition in June 2019
  • Completed Spargos Reward gold project purchase in August
  • Changed name from RNC Minerals in June

What Karora Resources does:

Karora Resources Inc (TSE:KRR) is now a "top tier" junior gold producer in Western Australia having started its transformation - when known as RNC Minerals - with the 2019 purchase of the Higginsville Gold Operations (HGO).

The group is focused on growing gold production and reducing costs at the integrated Beta Hunt Gold Mine and the Higginsville mine and its associated treatment facility.

At Beta Hunt, a robust gold mineral resource and reserve is hosted in multiple gold shears, with gold intersections along a 4 kilometre strike length remaining open in multiple directions.

Higginsville has a substantial historical gold resource and highly prospective land package totaling approximately 1,800 square kilometers.

The Higginsville treatment facility is a low-cost 1.4 million tonnes per annum (Mtpa) processing plant which is fed at capacity from the underground Beta Hunt mine and open-pit Higginsville mine.

In August, 2020, Karora expanded further after completing the acquisition of the Spargos Reward project tenements, which cover 33 square kilometres located in the Eastern Goldfields of Western Australia, 35 minutes by road to from the Higginsville gold operation.

On top of the existing historical resource, there are a number of historic workings within the project, the most notable of which is the historic Spargos Reward Gold Mine which produced 105,397 tonnes at an average grade of 8.56 grams per ton (g/t) of gold in the 1930s and 1940s, with limited gold extraction since that time.

The Spargos gold project contains a historical JORC (2012) Mineral Resource Estimate of 112,000 oz (785,800 tonnes at 4.4 g/t) indicated resource and 19,000 oz (151,000 tonnes at 4.0 g/t) inferred resource.

How is it doing:

In its most recent move, in March 2021, Karora wrapped up a 12,000 metres drill program at the Spargos Reward gold project that delineated high-grade gold mineralization within 100 meters (m) of surface along a 400m strike length. Drilling at Spargos extended the high-grade gold plunging shoot to over 300m down-plunge, intersecting 6.1 grams per ton (g/t) gold over 14m, including 8.6 g/t over 5.7m.

The company also reported what it called “encouraging” Phase 1 drill results from initial scout drilling on the Lake Cowan area just outside the company’s Higginsville Gold Operations in Western Australia, which included 3.64 g/t gold over 16m. 

And Karora revealed new high-grade gold intercepts from an ongoing drill program at the Larkin Zone at its Beta Hunt gold mine in Western Australia. Drilling there intersected 19 g/t gold over 9m.

In January 2021, Karora reported record production of 99,249 gold ounces for the 12 months ending December 2020 from its Beta Hunt and Higginsville mines, beating its full-year production guidance by 7%.

For the full-year 2021, the miner is targeting group production of between 105,000 and 115,000 ounces of gold - a 21% increase over the high-end of 2020's guidance. Average all-in-sustaining-costs (AISC) for 2021 are expected to be between US$985 and US$1,085 per ounce.

In late 2020, the company unveiled a first consolidated reserve and resource estimate for its two main assets - Beta Hunt and Higginsville - which showed an increase to the Proven & Probable (2P) gold reserve of 334% to 1.33 million ounces. The consolidated Measured and Indicated (M&I) gold resource, meanwhile, was boosted by 167% to 2.52 million ounces.

The estimates did not include the recently-acquired, high-grade Spargos Reward project, for which a resource and reserve will be completed in the first half of 2021, to include the new high-grade zone.  

As well, in early November 2020, the company reported that underground development at the Beta Hunt Mine has intersected an estimated 2,000 ounces of coarse gold (with accuracy of +10%/-25%), which was found in the same geological environment as previously-announced coarse gold occurrences and proximal to the 2018 Father's Day Vein discovery.

As it focuses its activity on Western Australia, Karora revealed in July 2020 a deal to sell its 28% interest in the Dumont project in Quebec, one of the globe's largest undeveloped nickel assets. Dumont is being sold to two private funds advised by Waterton Global Resource Management for a total consideration of up to C$48 million. Karora will have the right to receive a portion of future proceeds of any future sale of Dumont or other monetization event.

In another boost, in the same month, well-known Canadian resource investor and gold bull Eric Sprott agreed to increase his ownership in the company by 26 million shares via a complicated deal. 

On the financial front, Karora noted that its consolidated cash balance had increased to C$79.5 million as of December 31, 2020, from the C$67.3 million reported in its September quarter.

What the broker says:

Analysts at Canaccord Genuity on March 2 maintained their ‘Buy’ rating on Karora with a C$6.75 price target after the miner wrapped up drilling at the Spargos Reward gold project. 

The Canaccord analysts noted that drilling at Spargos extended the high-grade gold plunging shoot to over 300m down-plunge, intersecting 6.1 g/t gold over 14m, including 8.6 g/t over 5.7m.

“The identification of the high-grade shoot extending to depth also shows the potential to transition this operation from open pit to underground,” the analysts said. “With the pits only planned to 100m, an underground scenario could substantially extend the future mine life at Spargos.”

The analysts also noted the company’s exploration budget is 33% bigger for 2021, and said they expect to see the reserves and resources grow again in Karora's September 2021 update.

“We will look for a potential optimization study that could outline a throughput expansion scenario supported by the larger reserve base,” they added.

Karora’s stock currently trades around US$2.39 a share in New York and C$3 a share in Toronto.

Inflection points:

  • Fast-tracking of Spargos Reward gold project
  • Cash-flow from Spargos seen generated in 2021
  • Reserve and resource estimate for Spargos expected in 1H 2021 

What the boss says:

In the March Spargos drilling update, Karora Resources CEO Paul Huet told investors: “In mid-November, we announced some of the best drill results in Karora's history and today we have confirmed a major extension of the high grade plunging shoot thesis we originally outlined with our first pass results.

“This is a new shoot, not previously recognized by previous owners and highlights both near-surface high-grade mineralization, as well as the underground opportunity that exists at Spargos.”

Contact the author: patrick@proactiveinvestors.com

Follow him on Twitter @PatrickMGraham

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