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: 2.93 CAD

Market: TSX
Market Cap: $425.8 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 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 in Western Australia, 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 - in Western Australia, 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 do 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.

Also in November, Karora outlined plans to develop a potential economic starter pit at its Aquarius project in Australia as early as mid-2021, following a near-surface drill program that identified 43.5 grams per tonne (g/t) gold over 3 meters (m).

And in the same month the company reported initial drill results from the newly-acquired Spargos Project in Western Australia, which included 29.8 g/t gold over 19.0m. The results were part of a 12,000m drill program at Spargos, all within about 100m of surface, which could potentially be included in an expanded open-pit scenario.

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

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

What the broker says:

In January, Canaccord Genuity analysts released an updated note on Karora, saying the miner’s 4Q production results were a “nice beat with the stage set for potentially substantial future growth".  

“We believe the reserve and resource update in 2020 was only a snapshot of the property and expect drilling to continue to reveal future opportunity to add to the mine life,” the analysts said.

They added: “We also expect a reserve and resource update at its high-grade Spargos Reward property in 1H 2021 following positive initial drilling in 4Q 2020.”

The Canaccord Genuity analysts also expect Karora to provide an update on its multi-year organic growth plan and possible mill expansion in the first half of the year, which they say could support material production increases relative to fiscal 2020 as well as the company’s 2021 guidance.  

They added that there is potential for a significant re-rate of the stock pending further clarity by Karora on its future potential growth, specifically on its mine sequencing, growth and exploration priorities.

Canaccord Genuity currently has a 'Buy' rating on Karora with a price target of C$6.25 per share (unchanged), noting that its stock trades at a discount to its peers at 0.50 times' Price to Net Asset Value (P/NAV) compared with the peer group average of 0.67 times'.  

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:

"I am extremely pleased to report full-year 2020 production of just under 100,000 ounces, beating the top end of our 2020 production guidance by a substantial margin in our first full year of production with our Higginsville mill," Karora Resources CEO Paul Huet told investors in a statement.

"I am also excited that we ended 2020 on a very strong note, producing 25,637 ounces which was our best quarterly result in 2020."

Contact Sean at sean@proactiveinvestors.com

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