viewKarora Resources Inc.

Karora Resources 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, which 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: 3.1 CAD

Market: TSX
Market Cap: $450.5 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 (TSX: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 JORC1 (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:

On August 10, 2020, Karora reported strong second-quarter results, which saw the miner increase its earnings, boost the balance sheet, and reduce costs.

For the three months to June 30, 2020, the firm reported consolidated gold production of 24,078 ounces at all-in-sustaining costs (AISC) of US$1,065 per ounce, at US$36 per ounce improvement on 1Q, while net earnings came in at C$9.8 million, significantly up from C$0.5 million seen in the first quarter this year.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was C$17.3 million, up from C$13.6 million in the preceding quarter. The firm ended 2Q 2020 with cash of C$50.2 million, and working capital of C$43.8 million, up from C$11.8 million and C$13.1 million respectively from March 31 this year.

Karora repeated its production and cost guidance for the full year of between 90,000 and 95,000 ounces of gold at an average AISC of US$1,050 to US$1,200 per ounce sold. Karora's gold output for the first half of 2020 was 48,894 ounces positioning it well to achieve its 2020 gold production guidance.

In the August 10 statement, Paul Huet, Karora CEO said: "We have been extremely busy at Karora since the start of the second quarter, with yet another strong operational performance of sustainable gold production and steadily reducing costs, despite challenges associated with COVID-19."

Huet noted that Karora is now a "top tier junior producer", having closed the Spargos Reward high-grade gold project acquisition on August 7, which the group said it intends to fast track into its growing production pipeline with the goal of beginning to generate cash flow from the project in 2021.

As it focuses its activity on Western Australia,  Karora revealed, on July 22, 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.

And at the end of July, Karora agreed to sell, directly and through a wholly-owned subsidiary, a holding of 11,251,456 shares of Orford Mining Corp (CVE:ORM) at a price of $0.09 per share for roughly $1,012,631. The group owned 22,502,911 Orford shares and warrants to purchase up to an additional 1,095,505 shares representing an approximate 23.6% interest on an undiluted basis and 24.5% on a partially diluted basis.

After the sale, the company will control 11,251,455 shares and warrants to purchase up to 1,095,505 shares, representing an 11.8% interest in Orford on an undiluted basis and 12.8% on a partially diluted basis. The company said it disposed of the Orford shares for “investment purposes only.”

The group also eliminated the Morgan Stanley net smelter royalty (NSR) on the Higginsville properties and announced an agreement with Maverix Metals to reduce its Beta Hunt gold royalty during the second quarter, essentially unlocking Higginsville and Beta Hunt for "renewed exploration growth.

Karora revealed on June 30 that it had struck a deal with Maverix to reduce its royalty on gold production from the Beta Hunt mine to 4.75% from 7.5% with effect from July 1, 2020. As consideration for the reduction, Karora said it would pay US$5 million in cash and issue 35.1 million shares at C$0.506 each to Maverix. The cash will be paid in two equal instalments of US$2.5 million, with the first such payment to be made on closing and the second payment to be made in January 2021.

In another boost, in July, 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. 

The company said it had worked alongside Maverix Metals to effectively place the entire planned share issuance from the royalty deal, announced on June 30, and in lieu of issuing shares to Maverix, Karora said it will use the proceeds from a total of 36.5 million common shares to be issued to Sprott and one other institutional investor to complete the transaction with an all-cash consideration of US$18 million.

The shares of Karora to be issued to Sprott and the institutional investor were issued at the same $0.506 price per share that had been agreed with Maverix.

Inflection points:

  • Fast-tracking of Spargos Reward gold project
  • Cash-flow from Spargos seen generated in 2021
  • Continued increase in output/reduction of costs at HGO

What the boss says:

In a statement in July, Karora CEO, Paul Huet told investors: "With a growing cash balance of over $50 million, underpinned by steady-state operations and our success in reducing costs in a rising gold price environment, Karora is in a very strong position to continue to deliver value to its shareholders and we are excited about our future."

Contact the author at jon.hopkins@proactiveinvestors.com

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